Syria’s Troubled Currency

Syrian state TV this morning broadcast images of a nervous-looking Bashar al-Assad as he prayed alongside Syria’s grand mufti to mark the start of Eid al-Fitr, the holiday that ends the holy month of Ramadan.

Though this is Assad’s third public appearance in just over a week as the regime tries to capitalise on recent gains against rebels fighting to oust him from power, the president’s eyes, darting back and forth, told a different story.

The reality is that Syria’s economy is deteriorating fast and there is little the regime can do to stop it.

As Anne Barnard, the New York Times’ Beirut bureau chief summarised:

Two years of war have quintupled unemployment, reduced the Syrian currency to one-sixth of its prewar value, cost the public sector $15 billion in losses and damage to public buildings, slashed personal savings, and shrunk the economy 35%.

And desperate times call for desperate measures. The government is now implementing measures to try to slow the rate of economic deterioration. It banned food exports, launched a crackdown on black market traders and measures to tighten state control of the economy.

Earlier this week, the government also forbid the use of foreign currencies for any type of commercial transaction or settlement. Anyone found violating the decree could face anywhere from three to 10 years in jail, with hard labour, depending on the level of the “crime”.

It’s no surprise that the regime is putting in place stricter measures to stem the volatility of the exchange rate. After all, the Syrian pound now changes hands at around 200 pounds to the dollar in the black market, from just 47 pounds before the conflict erupted in March 2011.

But there’s a more sinister impact of these harsh rules. Economists say the stiff penalties are a throw back to a more draconian era where economic courts handed out harsh sentences and loomed heavy over Syrian businesspeople. 

Ironically this was phased out as Bashar al-Assad moved in favour of a more economically liberal approach.

But as the country now moves to rein in some of the modest economic liberalisation and support for private business that the president introduced early on in his tenure, the prospect of more state control and less economic freedom is real.

Still, despite the fact reserves are perceived to be close to zero, sanctions against the government, a depreciating currency and a growing black market, Syria has still managed to avoid hyperinflation by relying on credit from its allies (namely Iran and Russia). 

For a country to experience hyperinflation, it has to have monthly inflation rates of 50% or more. Syria’s rates are more in the region of 10% to 14%, according to Steve H. Hanke, a professor of applied economics at Johns Hopkins University and one of the only economists investigating Syria’s economy.

Annual inflation is estimated to be running at about 200%, Prof. Hanke told Rebel Economy, with most food prices now tripled, but that still doesn’t mean total collapse:

My experience with situations like this, for example in the former Yugoslavia in 1991 [where Prof. Hanke was an advisor to the government], is that it really can take some time for an economy to collapse.

Even in the case of Yugoslavia it took quite a number of years before Milosevic’s regime actually collapsed. But then they had the third highest hyperinflation in history in January 1994, and in one month registered a rate of 313 million%.

It’s much, much higher than anything they’re experiencing in Syria.

But that’s not to downplay Syria’s economic situation.

This table, from Prof. Hanke’s “Troubled Currencies” project, shows the level that Syria’s annual inflation rate has reached compared to other countries with currency pressures:

As people’s purchasing power is eroded and the Syrian pound loses value, the economic impact of the civil war will become painfully clear.

Syrians, knowing the country is on the brink of hyperinflation, will be forced to depend on increasingly informal methods of payment, more akin to bartering than to a financial transaction.

Even though Iran announced a $3.6 billion credit line to the Syrian government earlier this month that could help with fuel and other products, there is no guarantee that this deal will materialise. The prospect of hyperinflation, and the subsequent additional trauma on civilians, is nearing.


One Comment

  • Gareth
    Posted August 8, 2013 at 5:23 pm | Permalink

    Farrah i enjoy what you write,Thanks

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