Just before Christmas last year, Syria in Crisis published a survey of specialists on Syria’s economy and its prospects in the coming year. The economist Jihad Yazigi concluded his contribution with a grim prediction: “Year 2016 will see Syrians poorer, living a more miserable life, and emigrating in higher numbers.”
How right he was.
In the past few weeks, the Syrian pound (SYP) has depreciated rapidly. The Russian announcement of a partial pullout of troops from Syria on March 14 prompted a rush on foreign currency, as traders feared a downturn in the fortunes of the Syrian army. On March 24, Reuters cited Alaa Diraniya, the head of the Exchange Dealers Association in Jordan, who is in daily contact with Syrian money changers, as saying the price of a dollar had for the first time reached 500 SYP in Damascus that morning. When the conflict began five years ago, a dollar cost 47 SYP.
Since then, the hollowing-out of the currency’s value has continued. On April 2, one dollar reportedly sold for between 510 and 515 SYP in some areas of the Damascus region, 505-507 SYP in Aleppo, and 505-510 SYP in the coastal city of Latakia.
These are, of course, all black market prices. On March 31, the Central Bank of Syria reluctantly raised its official exchange rate to 443 SYP to the dollar, but this will soon change again.
After having briefly brought inflation under control in 2013, at least partly thanks to an influx of Iranian aid, the government’s structural and financial problems began to pile up in the summer of 2014. Currency reserves began running out, fuel supplies were badly disrupted, and associated costs began to rise. This put severe strain on the government’s system of subsidies and price controls. According to Syria’s Central Bureau of Statistics, the period of May 2014 to May 2015 alone saw a 34 percent rise in consumer prices in Damascus, with other areas experiencing even worse problems. These problems were exacerbated when the army began to lose ground to the insurgency in spring 2015 and did not subside even after the Russian intervention in September 2015 turned the military situation around. Prime Minister Wael al-Halqi made a panicky call for “immediate and urgent measures” to control inflation in November 2015. But since then, the official exchange rate has gone up by a further 100 SYP, from 343 to a dollar to today’s 443.
“Prices May Change Any Second”
Market prices for basic goods are now climbing steadily, lowering the already very difficult living standards of ordinary Syrians. Wael al-Deghli, a reporter for the economic journal al-Iqtisadi, took a tour of the markets in Damascus last week and found steep increases in the price of everything from rice to olive oil. The product hit hardest was sugar. Though you could have bought a kilogram of sugar for 280 SYP a week earlier, when Deghli did his tour it sold for 350 SYP. On March 29, the Directorate for Internal Trade and Consumer Protection raised the state-controlled price of bread by 40 percent. However, the rising costs haven’t been restricted to foodstuffs. Deghli also noted that some mobile telephone salesmen had recently begun posting the prices of their devices on Facebook, accompanied by a warning that “prices may change any second.”
The state has tried to intervene to stabilize the market by unloading stockpiled goods and monitoring prices. But these efforts have been mostly unsuccessful, something al-Iqtisadi attributes to problems of distribution, but also corruption. Officials are reportedly selling sugar from state warehouses for 175 SYP per kilo, far below the market price, presumably in return for a cut of the profits. Though the authorities often report arrests of black market money changers and close shops that break the rules, they seem incapable of dealing seriously with rampant economic criminality and its effects on state policy. A major reason is that the government itself is a root cause of the problem. For decades, the Syrian regime has been mired in corruption, benefiting from the exploitation of state regulations, bribery, and organized crime at every level of the system.
Losing Faith in the Pound
Last weekend, the state-owned Russian channel RT, which is normally very upbeat about everything that has to do with the Damascus government, published an article stating that Syrian inflation had spiraled “out of control.”
Even in Syria, the press ridicules the government’s economic performance. The al-Watan daily, which is owned by President Bashar al-Assad’s cousin, the prominent Syrian businessman Rami Makhlouf, has just published an editorial cartoon poking fun at the state’s refusal to admit its own failure. The picture shows an official standing before a poster with the text “2015: 250 = 1$,” angrily waving his fist as he proclaims: “We will never allow the speculators to raise the price of the dollar!” The next frame is identical to the first one and the official is still shouting the same thing. The only detail that has changed is the text on the poster: “2016: 450 = 1$.”
In autumn 2014, al-Iqtisadi calculated that a Syrian family needed 80,000 SYP to cover its living expenses, while an average salary at the time was 25,000 SYP. Even if both parents worked full time, their wages were not enough to get through the month. As a result, people have had to make up for the rest in the usual ways: taking several jobs, raising their income by demanding bribes, and so on. Other methods have included pulling children out of school and putting them to work, renting out rooms to refugees, selling cars and valuables, pleading for help from relatives abroad, and using whatever money was saved before the war. But inflation is now aggressively slashing the value of all that extra income: At this point, those 80,000 SYP would not even cover two weeks of expenses for a normal family.
“Why would anyone want to keep the Syrian pound?” Alaa Diraniya, the exchange dealer in Jordan, asked Reuters. “People see their savings evaporating in front of their own eyes. One million pounds were $21,000—now they are worth just $2,000.”
The Political Dimension
As salaries and savings lose value relative to the price of food and necessities, Syrian families are forced to scrounge for other sources of income as best they can. Or, as a quarter of the population has already done, they are looking for ways to flee abroad.
Most of Syria’s refugees and internally displaced persons have come from territories held by insurgent groups, where the regime’s and Russia’s aerial bombardment, rebel infighting and criminality, and economic devastation have combined to make life unbearably difficult. But the collapse of the SYP and failing public services are now making it impossible for Syrians to maintain a semblance of normality in government-controlled cities as well, rapidly impoverishing the urban middle classes that have largely stood apart from the uprising.
The worse living conditions get, the more clearly the socio-political dimension of Syria’s economic ruin appears. Unlike the anarchy that prevails in opposition-held territory, Assad’s rule has rested on the existence of a central state that organizes public life and provides services, salaries, and pensions to millions of Syrians. That system still exists, sustaining a substantial popular base for the government, but it is being hollowed-out by economic decay. The president has on several occasions decreed wage hikes for all state and army employees—about 1.5 million people in all—but these have been quickly undermined by subsidy cuts and tax increases. With the pound having lost nine-tenths of its value, salaries have not kept pace with inflation.
In the long run, if the state can no longer maintain the normal functioning of its institutions, finance public services, or keep up wage payments—or if those payments dwindle too much in value—the role of the central government will shrink. Assad must either stem the decline, or he will eventually be forced to farm out state tasks to non-state actors or be left to watch helplessly as citizens abandon state institutions to seek out more viable alternatives on their own.
Indeed, many pro-government Syrians already rely on extra income, services, or protection from aid agencies, relatives abroad, wealthy businessmen, militia leaders, tribes, foreign contacts, or others not directly linked to the state hierarchy. If the economic meltdown continues, the salary drawn from a state job will soon become merely one source of income among many, accelerating the turn toward non-state actors and social and economic networks outside government control.
The unchecked growth of informal structures can be seen even in the security sector. Core military functions that would normally be run by the state are now being bankrolled by non-state or foreign actors. For example, Iran supports the paramilitary National Defense Forces while Iraqi, Lebanese, and Afghan Shia volunteers with no direct allegiance to Assad are fighting on the fronts. Rami Makhlouf has created a vast private network of militias and security-linked institutions through his al-Bustan charity, and the powerful businessman Ayman Jaber has set up his own elite military unit, known as the Desert Hawks. To be sure, these groups all work to achieve common goals and infighting among them remains very rare—nothing resembling the chaos in opposition ranks. But they are only tenuously linked to each other through common institutions and do not form a cohesive structure, like a normal army. Rather, likeminded but largely autonomous forces seem to have united around the person of Bashar al-Assad and the institutions of the state and the army.
Though the Syrian president is doing well militarily and may remain in power in Damascus for years or decades to come—no one seems very eager to oust him anymore, at least no one capable of doing it—the evolution of the state’s finances will decisively shape the structure and outlook of his regime. If the formal economy proceeds to break down in more fundamental ways than it has already, if the SYP loses even more of its purchasing power, and if state institutions cede ground to private charities, the black market, and militias, then the Assad regime will continue to evolve from an institutional state apparatus into a coalition of warlords. While tragic for Syria, such a development is especially dangerous for Assad himself, since his long term strategy is predicated on an ability to present himself as the last barrier against a permanent state collapse in Syria.
Reversing the decline of the government’s financial writ is therefore just as important to Bashar al-Assad as winning the battles on the ground. So far, he has seemed considerably more successful at the latter than the former.