The Costs Of Civil War: Syrian Economy Crumbling

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As Syria’s civil war drags on, its economy continues to crumble:

BEIRUT, Lebanon — Even as the Syrian government makes some gains against the rebels on the battlefield, it is taking a rout on an equally important front: the economy.

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 damages to public buildings, slashed personal savings, and shrunk the economy 35 percent, according to government and United Nations officials.

The pillars of Syria’s economy have crumbled as the war has destroyed factories, disrupted agriculture, vaporized tourism and slashed oil revenues, with America and Europe imposing sanctions and rebels taking over oil fields.

Increasingly isolated in the face of a growing economic crisis that has reduced foreign currency reserves to about $2 billion to $5 billion from $18 billion, a government that long prided itself on its low national debt and relative self-sufficiency has now been forced to rely on new credit lines from its main remaining allies — Iran, Russia and China — to buy food and fuel.

The government has a $1 billion credit line with Iran, and borrows $500 million a month to import oil products delivered on Russian ships, a government consultant, Mudar Barakat, said in a recent interview in Beirut. Some analysts believe the government will need even more aid from those countries to keep paying government workers and a growing roster of security forces.

Now, some officials hope to push through measures to tighten state control of the economy, rolling back some of the modest economic liberalization and support for private business that President Bashar al-Assad introduced early on, in a departure from his party’s socialist roots.

“We’re thinking of going back to the way it was in the 1980s, when the government was buying the main necessities of daily life,” Mr. Barakat said. “We, as a government, must cover the daily needs of the people, no matter how much the cost is, and keep the prices low.”

Syria’s economic problems, in Mr. Barakat’s view, are rooted in the loosening of state control by reformers favored early in Mr. Assad’s tenure, who he said “vandalized” the economy “into this liberalized sort of chaos.”

A faction that includes Kadri Jamil, a Russian-educated, socialist former professor who was appointed deputy prime minister in charge of the economy in a shake-up last year, hopes Syria can weather the storm by raising wages, tightening price controls on subsidized goods like bread, cracking down on black-market currency traders and even ceasing government trade in dollars and euros.

The government, Mr. Barakat said, now signs new foreign trade deals only in the currencies of friendly countries to insulate itself from what it sees as an economic conspiracy orchestrated by its international enemies.

But such measures — met with ridicule and even defiance by some Syrian businesspeople — will provide at best short-term relief, economists say.

Even the free-flowing aid from Iran and other allies inspires little confidence among Syrians, said an economist in Damascus who asked not to be identified publicly as criticizing government policies, because it shows the government “has no means and depends on others to save it.”

A Damascus businessman derided the new policy of doing business in Iranian, Russian and Chinese currencies.

“These countries themselves do business in dollars and euros,” he said, adding: “Syria today is not Syria in the 1980s. It is easy to keep the door closed, but it is hard to close it after it has been open 13 years and people are used to breathing the fresh air.”

This month, the government banned food exports and announced a crackdown on black-market money traders. The value of the Syrian pound plunged to 330 to the dollar, down from 47 before the war.

On Wednesday, amid a flurry of panicked dealing, the Central Bank tried and failed to strong-arm traders into selling the Syrian pound at a higher, preset price. Dealers said Central Bank officials offered to guarantee a tiny profit if they would sell the pound at a rate of 250.

The traders refused, several said. The government, they said, lacks the power to impose its will, in part because a few wealthy businessmen influence the dollar rate and corrupt officials profit from the trade.

The next day, currency exchange shops in the Damascus districts of Hariqa and Marjah were bustling. Customers clamored to change their savings into foreign currency — Saudi riyals, Emirati dirhams, anything — and traders shouted into phones, asking of the dollar, “How much is the green?”

Given the nature and extent of the war, combined with the international sanctions that have been in place since it started, it’s not surprising that the economy is suffering. The government taking the economy back to the command system that was in place when Bashar Assad’s father was in power may be an understandable response, but it’s only likely to make things worse. What’s even more clear, though, is that if and when it ever does emerge from this period of conflict, Syria is going to have some serious economic rebuilding to do along with all the other problems it will face. This makes the prospect of success after civil war even less likely for the Syrian people.

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FILED UNDER: Middle East, Quick Takes,
Doug Mataconis
About Doug Mataconis
Doug holds a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010. Before joining OTB, he wrote at Below The BeltwayThe Liberty Papers, and United Liberty Follow Doug on Twitter | Facebook