The History of Outgoing Dollars, and the Fate of Incoming Dollars?
Ishtar Mahmoud Ishtar Mahmoud

The History of Outgoing Dollars, and the Fate of Incoming Dollars?

The issue of the distrained bloc of Syrian dollars in the crisis of Lebanese banks turned to be one of the Headlines last week. Some thought that the reasons date back to decades ago and are related to the Syrian economic structure as a whole, which is logical, as the issue is “historical”, i.e. it happened for reasons, developed due to factors and continue because of interests and mechanisms.

In general, everybody knows that money leaving Syria and being smuggled out of it is an old matter, and is a result of interactions in the economic and political system, the essence of which is in the accumulation of important profits and poor investment inside the country due to low profitability of investment. Generally speaking, profits in Syria used to get 75% of the total annual income, but the owners of these profits invest only what is less than 20% of the output. The main investors were those of small or medium profits: Syrian farmers and owners of workshops and industrial factories in the first place. Whereas, the sector of the satiated who receive their money easily and quickly used to get an important amount of it historically.

As for Lebanon, it is the closest and easiest destination. It is a regional banking center since its establishment and one of the main destinations for the stability of money or its transit to the banks of the West.

Waves of Outgoing Syrian Money

The first wave of outgoing money, according to some, dates back to the period of nationalization, and the second wave dates back to the 1970s and the huge expansion in major cycles of corruption and bureaucratic wealth, in which the flow of Gulf oil money to Syria contributed. Thereafter, the crisis of the 1980 and the collapse in the value of the Syrian pound, entrenchment of currency black market, and the Syrian presence in Lebanon, particularly during the 1990s, that is, after the Taif Agreement. As Gulf money goes through Lebanese corruption cycles in the name of reconstruction, under the Syrian presence (the political and the economic) which plays an important role in this corrupt system that was formed back then and contributes in important Syrian powers having a share in the major plundering process of Lebanon, in which all the ruling and influential elites in Lebanon and in the region participated.        

As for later, the period of (Syrian economic and commercial liberalization), which the private Syrian banks were one of its epitomes, could not seriously compete with the Lebanese banking system (rather it was on a large extent an extension of it). It also did not attract Syrian money that kept flowing into Lebanese banks, as Lebanese banks interact with international variables at a larger level and attract a decent bloc of international financial flow, following the crisis of 2008, and through interest rates that reached 35%.


Insecure Business Environment

Business owners have a term they frequently repeat about the “environment of investment”, so, the business and investment environment in Syria is being described as “insecure and bureaucratic”, and it is the reason why money is leaving Syria and not flowing into it as some are saying. This matter reflects an objective reality that can be classified by political and economic characterizations. Economic liberalization in Syria was an extension of the state of monopoly and high centralization of profit, and it was a mechanism for major bureaucratic corruption powers to enter wide partnerships in the market and outside the state apparatus but by using the wight of this apparatus.

For example, bureaucratic obstruction occurs to projects that do not accept partnership, whereas the formation of major economic and financial entities that declare this partnership gets facilitated to the maximum, like in holding companies. While business men and wealth-holders in the market want to be liberated from the bureaucratism of the state apparatus and want to convert it into a facilitator to their business, in addition to allowing a “more equitable sharing” of profit. So, economic liberalization preserved the bureaucratism of the state apparatus as a tool in the hands of the powers of wealth through corruption, which give and take. However, it’s an economic power that competes with the traditional business environment. It is a crucial competitor that owns the decision in economic and financial policy, and in approval and prevention! And that is what business owners call “insecurity”.

That was all before the crisis, i.e. before the extensive deterioration of the environment of investment, production and infrastructure, which pushes productive, profitable and stable capital to get out.  

Ways of Smuggling and the Currency Black Market

When the objective reason is available for money to be smuggled, then all legitimate and illegitimate avenues for its exit are available. Private banks can be a way to get money out through their account activity with their parent banks abroad. Foreign trade can also be one of the ways by inflating the number of foreign payments and transactions to get out money through them, reaching all the way to smuggling money in trucks like smuggling sheep and vegetables, as the Syrian borders have never known “serious control”, and their looseness was and is still a main source of income for important and predominant networks of corruption.  

Finally: hard currency black market is an essential link in money smuggling cycles, as profits leaving Syria to Lebanon, for example, require converting them from Syrian pounds to USD, which are deposited then in Lebanese banks. Part of this process takes place in the Lebanese market but it is marginal. As for the most important part, it takes place in the Syrian market where there is always a dollar bloc available for speculation.

This speculative dollar bloc is “high in significance” and has several sources, but the bureaucratic tools and deliberate monetary policies are one of its most important supporters. When the official price of the dollar is 100% different from the price of the dollar in the market, not a single dollar will go to the official outlets, and millions of expatriates will find a way through the channels of the black market to deliver money to their relatives in full.

This determined result of the illusionary official price (which the government no longer even prices its imports with) practically leads to providing the black market with $ 3 billion annually at the minimum from the remittances of expatriates only, according to the latest official remittance number. These billions of dollars are bought by the powers of the black market and are practically sold to those who smuggle their money to Lebanon and other places. So, had this bloc reached the official channels, smuggling money abroad would have been more difficult, the stability of the price of the Syrian pound would have been higher, feasibility of investment and its profitability would have also been higher, and the incentive for smuggling money would have been less, especially with the termination of insane profit from depositing in the Lebanese banking system and causing it “a stroke”.

Indeed, the loss of dollars deposited in Lebanese banks had an effect on providing dollars for import operations, a significant part of which was carried out through Lebanese banks, and it constituted a higher demand for the dollar bloc in the Syrian market. However, this is the last and the weakest link in the overall economic calamity in Syria, the first of which is corruption, the last of which is corruption, and in between are hundreds of channels and tools.