Stopping the Collapse: 2254!
The plunge of the Syrian pound (SYP) to foreign currencies exchange rate continues at an unprecedented pace over the nine years of the crisis. While the price was revolving around 600 SYP to the dollar during the month of August (2019), it recently reached about 1,200 SYP to the dollar – a decrease by half in the SYP exchange rate within four months.
A simple comparison of the relative speed of the collapse with the speed of the previous decline during the past nine years is alone sufficient to sound the alarm that a new phase has begun.
The Speed of Collapse
Over the period of nearly nine years, the SYP exchange rate decreased from about 47 SYP to the dollar, to around 600 SYP to the dollar, meaning that the Syrian pound lost 92% of its price. It should be noted here that we do not use the term “of its value”, because the calculation of the depreciation of the real SYP value is based on the purchasing value, i.e. the goods the Syrian pound can buy – a calculation that Kassioun has periodically performed, and which yields numbers less than the SYP price decline, but not by much.
In other words, one can say that the SYP lost on average 5% of its price every six months but lost ten times this average during the last four months – i.e. nearly 50% of its price. This means that we are looking at an average collapse speed that is more than ten times the average speed of collapse during the last nine years.
The Value of the Currency
Returning to the discussion of the value of the currency (and not its price) – thus, the goods the currency can buy regardless of the exchange rate to foreign currencies – the SYP value decrease, a loss of 86% between 2011 to 2018, will grow with the new wave of the exchange rate collapse to more catastrophic limits (Kassioun will demonstrate that according to the purchasing power in subsequent issues). However, initial estimates indicate that the SYP currently will have lost at least 93% of its value since 2011, given that the SYP exchange rate has lost 96% based on the exchange rate of 1,200 SYP to the dollar.
The SYP exchange rate – although not accurately expressing its value – at the end of the day, is a price, and the price of any commodity, including currency, is a deviation from its value, up or down, according to supply and demand. Therefore, examining the exchange rate should scientifically consider two basic aspects: the first is the actual commodity-to-currency value, and the second is the question of supply and demand – and implicitly, speculation.
The Actual Value of the SYP
Basically, the value of any currency is determined based on the corresponding goods, that is, based on the corresponding production. The value of the currency is also determined by the amount of money in the market and the circulation speed thereof. Kassioun has repeatedly refuted these factors over the past years.
As a start, it should be noted that the large continuous decline in industrial and agricultural production, i.e. real production, has not witnessed serious improvement despite the developments on the ground, which have reduced road disruptions and problems directly associated with the military-security situation; thus, developments on the ground have not been responded to with policies that truly put the production wheel in motion.
External and Internal
In short, one can argue that the direct pressure on the SYP comes from two sources: external and internal.
The external pressure is mainly represented by the continued and growing Western embargo, as well as the large Syrian monetary mass abroad. Adding to this is the situation that Lebanon is going through, which has proven to be a weak spot for Syrian economy, which can further deepen the damage.
The internal pressure is represented, in terms of the outcome, by the economic policies adopted, which are steadily moving along a vicious neoliberal trend that is embodied by the state’s gradual and increasing abandonment of any role in the market. This is happening in parallel with more privatization and withdrawal of support, whether publicly or semi-publicly, in various vital sectors – mainly, agriculture and industry.
In essence, these policies are a reflection of the deep encroachment of the corruption powers, which not only control the levers of economic affairs in the country, but also deal lightly with any measures that do not conform to their plans and interests.
A New Factor
The two aforementioned factors are constant, in principle, and although their intensity has increased over the last year, this alone cannot explain the astronomical speed of the collapse. Thus, there is an additional factor that we believe is the most influential at the present time, which is the large corruption forces resorting to rapidly smuggling all that they have stolen – accumulated and new – where they get rid of the Syrian pound they have and change it for dollars to smuggle abroad. The acceleration of this process, and despite the direct tragedies it carries for the entire Syrian population, has clear political significance, which is that these forces now recognize that staying in their positions and dominance that allow them to plunder, has become greatly threatened as the real political solution through 2254 approaches.
Administrative and Economic Solutions?
The only path through which the process of collapse may be slowed down is a radical economic solution, the basic components of which are clear. The most important of these components is real, not media, eradication of the big corruption forces; recovery of the plundered funds; and pumping investments in industry and agriculture; all in parallel accompanied with financial policies that benefit the general public and combat the few outrageously rich.
However, the effect of all these measures, assuming they can be applied, will not appear for years if the political situation continues as is and if the economic embargo continues.
As for the administrative procedures, including the recent decrees, as well as the procedures and intentions recently announced (in the criminal legal sense), although they can represent minimal steps, the facts indicate that their effect on the exchange rate did not go beyond 24 hours. This reaffirms what was stated above, that the market and highly corrupt forces do not only underestimate the role of the state, but also believe that the state’s intervention has become marginal and does not raise their concerns or bother them, and they instead continue their insolent behavior as if nothing had happened.
No Solution Except 2254
Halting the deterioration, and opening the door to regression and then reversal thereof, is no longer possible without a major positive shock within the current conditions. This shock mainly means full implementation of UN Security Council resolution 2254, which would eliminate the pretexts of the Western embargo on the one hand, and perhaps more importantly, open the door for the Syrian people to truly express themselves and determine their destiny. This could be done by changing the existing structures to allow delivering a blow to the market-controlling and corrupt forces, which have exceeded in their insolence all limits, and it is no longer possible for the weak state apparatus – which is also penetrated by them on many levels – to stop them.