December 11, 2019 | Policy Brief

Syrian Currency Crisis Batters Assad Regime

December 11, 2019 | Policy Brief

Syrian Currency Crisis Batters Assad Regime

The value of the Syrian pound (SYP) hit an all-time low last week, falling 25 percent in a matter of days before recovering slightly. The worsening currency crisis demonstrates the extent of the Bashar al-Assad regime’s dependence on Lebanese sources of hard currency, which have dried up amid Lebanon’s own financial distress.

The Syrian pound depreciated more than 90 percent during the first years of the country’s civil war, but the exchange rate stabilized at roughly 500 SYP to the U.S. dollar in mid-2016, after Russian intervention turned the tide in Assad’s favor.

The pound began to weaken again at the beginning of 2019, in tandem with an emerging economic crisis next door in Lebanon. The pound’s value fell steadily in the informal marketplace, reaching 800 SYP per dollar by late November. In a moment of panic last week, the rate rose as high as 950 SYP to the dollar, raising fears the currency would soon become effectively worthless. To the Syrian authorities’ relief, the informal rate soon settled back at 850 SYP – still almost twice the rate set by Syria’s central bank.

Economic developments in Lebanon have a major impact on Syrian exchange rates because the Lebanese economy is heavily dollarized and serves as Syria’s main source of hard currency amid U.S. and EU sanctions. Syria has become increasingly reliant on imports during the war, and Syrian businesses need dollars to pay for foreign goods, from food to mobile phones to automobiles.

Syrian importers have come to depend on Lebanese banks for access to U.S. dollars, yet the Lebanese financial system broke down in mid-October, leading banks to close their doors amid mass protests that forced Prime Minister Saad Hariri to resign. When the banks re-opened, they placed strict limits on withdrawals and foreign transfers. Syrian importers lost access to their U.S. dollar deposits, as did Syrians who draw interest from Lebanese bank accounts. Those who receive foreign remittances sent through Lebanon also faced obstacles.

Consumer prices in Syria began to rise steadily as the pound grew weaker. If the currency goes into free fall, an inflationary spiral may follow, imposing severe hardships on populations under Assad’s control.

With few resources at its disposal, the Assad regime has shown little ability to mitigate the currency crisis. Syria’s central bank has not intervened in currency markets, likely because its reserves are negligible. The regime also sought to compel wealthy business leaders to contribute dollars to the government, but without any clear success. In addition, the government sharply increased the minimum wage, pensions, and salaries for civil servants. This may set off an inflationary spiral, especially if the regime foots the bill by printing money.

From an American perspective, the Lebanese economic crisis has had the unanticipated effect of closing the most significant loopholes in U.S. and EU sanctions on Syria. While Lebanon professes to respect U.S. sanctions, the Treasury Department has repeatedly exposed major evasion schemes that employ Lebanese front companies. Absent major reforms, the United States should not bail out a Lebanese economic system that has failed its own people, facilitated massive corruption, and provided indispensable support to Assad.

The United States should condition any support for Lebanon on extensive political reforms and dramatic improvements in transparency. Beirut should also commit to full cooperation with U.S. authorities to prevent Assad and the other members of the Iranian-led “axis of resistance” from exploiting Lebanon as a hub for illicit finance.

David Adesnik is director of research at the Foundation for Defense of Democracies (FDD), where Garda Ramadhito is an intern. They both contribute to FDD’s Center on Economic and Financial Power (CEFP). To receive more analysis by David, Garda, and CEFP, subscribe HERE. Follow them on Twitter @adesnik and @policygarda. Follow FDD on Twitter @FDD and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.


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