Syrian currency hits all-time low

The Syrian government has been trying to solve the crisis, with zero results.
Friday 22/11/2019
A merchant counts Syrian pound notes in Damascus, September 11. (AFP)
A merchant counts Syrian pound notes in Damascus, September 11. (AFP)

BEIRUT - The Syrian currency is collapsing fast, reaching its lowest point since being printed exactly 100 years ago.

At the start of the Syrian conflict in March 2011, 1 US dollar equalled 50 Syrian pounds. Trading is now at 750 pounds to the dollar on the black market, up from 500 pounds in early September.

The Syrian government insists the exchange rate is nothing but an illusion, fixing its 2020 budget at a mythical rate of 435 pounds to the US dollar. Because of severe fluctuation, market pricing is on hold and so are bank loans, factory production and any new contracts in the public and private sectors.

The fluctuating exchange range has made it impossible to fix the price of anything produced or sold in Syria or to determine its profit margin, bringing the economic cycle to a halt.

The ripple effects have been devastating to day-to-day transactions for Syrians. With their savings long gone, they mostly rely on monthly income that is already razor-thin after years of war. Their income has been further reduced to comically low levels because of the dollar surge.

Monthly salaries of A-level state employees are just less than $70, while staff members who are the backbone of the state and civil service earn $40-$50 per month. Private sector managerial posts earn high wages but none exceed the $400-per-month benchmark, which is barely enough for a decent living.

On November 21, state salaries were raised by 20,000 pounds a month ($27) and pensions by 16,000 pounds ($21).  That’s the largest increase in Syrian history, expected soon to apply to the private sector as well, regardless of what the original salary was.

“Even during the worst years of the war, things were not this bad,” remarked Mustapha al-Hajji, an economics professor at Damascus University. “We have a three-way problem: One is complete lack of coordination between the government and central bank, with no unified vision or road map — let alone acknowledgement of the problem.

“Second, while state expenditure is high, there is no revenue. Revenue comes from oil, which we don’t have anymore; tourists, who aren’t coming; production; investment from the public sector, which is on hold; and taxes, which the government doesn’t raise or even collect, fearing that people might explode.

“Third and last, we have a major problem coming our way from Lebanon, which everybody seems unprepared for.”

Corruption is also a factor, no doubt, which devours the state treasury from within. US and European sanctions have been biting hard at the cash-strapped Syrian economy, making it impossible for reconstruction to begin.

In October, hopes were momentarily raised that Syria would be regaining its undamaged oilfields in Kurdish-controlled areas east of the Euphrates River. That would have helped reduce Syria’s dependence on Iran and provided much-needed cash to boost the Syrian pound, pay wages, fund reconstruction and partially contribute to the Russian war effort. That did not happen, however, after the Trump administration announced it would be keeping the oilfields to itself, ostensibly, to prevent an Islamic State comeback.

Another reason for the collapse were rumours that accompanied a state-run campaign against influential businessmen, including Rami Makhlouf, the Syrian president’s cousin. That triggered a rumour mill in Syrian society, with speculation on who comes next, prompting influential businessmen and war profiteers to convert their money into US dollars and ship it out before it could be seized by the state.

As billions of Syrian pounds were abandoned and converted in a matter of weeks, the Syrian currency started to plummet, very rapidly.

Finally, were events in neighbouring Lebanon since mid-October. The dollar shortage in Lebanon was sharply felt throughout Syrian society, where people of all walks rely on the Lebanese banking system to avoid restrictions on transfers inside Syria. Syrian merchants paid for their exports in dollars from their accounts in Lebanon. Suddenly, there were no more dollars in Lebanon as banks imposed restrictions on cash withdrawal and wire transfers: no more than $1,000 per week, or 1 million Lebanese pounds per day.

“Unable to move money from their Lebanese banks Syrian businessmen turned to their local black market, buying and transferring dollars to keep up their trade, at grossly inflated rates,” said Fadi Esber, an economic researcher and analyst.

“Also rumoured is that with the dollar shortage in Lebanon, the Lebanese have been buying dollars in large quantities from Syria, again, greatly affecting the exchange rate. In both cases, high demand on the dollar and its low availability in the Syrian market is what is causing the increase in its value vis-a-vis the Syrian pound.”

The Syrian government has been trying to solve the crisis, with zero results. The authorities started with a massive clampdown on petty exchangers in the money market followed by banning the import of “unnecessary items” that “devour” the nation’s reserve of American dollars. The state said it will only allow the import of products that don’t have a “made in Syria” alternative, hoping to boost Syrian products and preserve the country’s reserve of foreign currency, thus “choking” the dollar.

Then came the comical initiative of Syrian businessmen, who pledged to donate money in US dollars that would be automatically converted into Syrian pounds to elevate the Syrian currency. At a meeting September 27, tycoon Samer Foz reportedly contributed $10 million. It is not known who else paid what but their initiative did not work and the exchange rate continued to rise.

“It had no effect” said Syrian analyst Amer Elias, “because it’s these exact same people who are profiteering, whether from the fluctuation or from the giant gaps in rates of the Syrian government and those of the black market.”

“What’s happening can only be described as financial deficit,” he added, “topped with absence of any clear vision on how to move forward. They still think that economic recovery means opening posh restaurants at five-star hotels!”