Will the Syrian Pound Stabilize and will we witness Warlords in Business Halls Again?
The exchange rate and the levels of prices have been relatively stabilized for two months in a row. It is something worth monitoring in the situation of Syria, after the deteriorated pace of the Syrian pound has accelerated since the end of 2018, and reached its peak in the first three months of 2020 and of the current year. So, is this current stability permanent? And what do warlords have to do with it?
The stability of the Syrian pound has many determinants related to economy and the laws of the market. However, just like any place in the world, politics and policies play their role in affecting those determinants, as the striking political power mutates the economic activity to suit it. In the situation of Syria these are: warlords, the owners of the greatest resources and those who are able to change the law, which is what we will explain next.
Abundance of Goods and the Dollar as a Fait Accompli
Prices stabilize as a result of two main aspects, the first is the movement of goods, and the second is the movement of money. For example: the price on 1 kg of chicken stays the same when the produced quantities of it commensurate with the demand for it (the movement of goods), and when the price of the dollar becomes stable in exchange for the Syrian pound (the movement of money). This is because most of Syrian products are priced with the dollar, as most of their costs are imported: 70% according to the estimates of the Minister of Economy for agricultural products. Practically, the price becomes stable when it covers the production of the market, and when the dollar is available for spending on production. For the situation to remain without deteriorating, production should not decline and the dollar should not be monopolized. The actual dilemma in achieving these two things is: the sector of the great shadow, and the activity of warlords in particular. Why?
What do Warlords have to do with Production and the Dollar?
The segment of warlords is the one reliant on influence and the power of arms to operate in shadow sectors: smuggling, drugs, confiscations, stolen goods, currency, and others. The largest part of the dollar flows to them and through them, and they are the ones who are capable of monopolizing it and profit from speculating on it. They are also not concerned with production except to the extent of (their power) over producers: through royalties paid on roads, to name a few, or through smuggling products abroad. Here is one of the aspects of solid coherence between the economic and the political situation in the situation of Syria, as these people are politically a power that influences economic activity and decision-making.
Since the end of 2018, with the intensifying of sanctions and economic restrictions, these people experienced the peak of their dominance and activity. First: (the privileged) have been relied upon to secure the declining needs of the country like energy, wheat, and others with exceptional profits, hence, they were allowed to control the basics of economic life and pricing. Second: they were allowed to access most of the foreign exchange flows from remittances (which almost entirely arrived through the black market because the official exchange rate remained less than the price of the market by about 40%). Third: no serious curb operations were applied on their aggressive black activity represented in standard shipments of captagon and hash that came out from local ports to ports in Europe, the Gulf, and Egypt. Fourth: we can say that they were allowed to benefit even from laws and decrees (controlling the monopoly of the dollar) as executive apparatuses associated with great corruption became able to control the powers of the market through the ambiguity of the laws of criminalizing the possession of the dollar. Over the past two years, there have been many cases of extortion under which traders have been arrested for owning or pricing the dollar, so that their situation is settled in exchange for financial payments and without judgments!
Pre-election Policies and "Curbing Speculation"
These trends continued until about two months before the elections, and then suddenly an adjustment in policies within a clear political endeavor started in order to reduce speculation on the Syrian pound. The most important adjustments were: raising the official price of remittances to approximate the price of the market, which has led to an increase in dollar flow through formal roads, allowing merchants and business men to buy the dollar from exchange offices, and recently refinancing basic imports through banks, both with a price close to the price of the market. All of this leads to unifying the price of the dollar, reducing speculation incentives, and increasing the amounts of the available foreign currency through official channels.
The other side of the adjustments is intensifying the policy of (the confinement of the Syrian pound) through the endeavor to reduce the bloc of the Syrian pound in cash trading. This happens through restricting daily withdrawal from the account balances available in the Syrian pound in banks, and through restricting the amounts of transferring and remitting money between governorates. It was recently also through procedures that require increasing the bloc of the Syrian pound deposited in banks, such as for example: giving instructions to customs not to endorse a check paid by a merchant from his bank account until he deposits a similar amount in this account. That is, when the merchant pays a check to customs from his account worth 50 million Syrian pounds, he should deposit before that 50 million Syrian pounds in his account so it would not decrease. This is an increase in the cost of imports by 100% in the concept of the merchant because he will have to allocate 100 million Syrian pounds for a process that its actual cost is 50 million!
Do the New Policies Guarantee Stability?
It should be said that these procedures certainly lead to a relative curb on speculation, particularly the part related to transferring a significant part of the dollar movement to the formal market. These procedures should have been taken at least two years ago, and not only two months ago! However, the other side, which is restricting the Syrian pound, harms local production and the movement of the market and practically increases costs, because it restricts and delays the bloc of the Syrian pound needed for production and trading operations, and time has its price in production. What is most important of all is particularly in not finding serious alternative solutions for energy imports, as we are still securing energy with an amount less than third of the needs, and producing electricity and fuels at the minimum sets limits to production and transportation.
What is the Alternative for Warlords to Speculation and Chaos?
But what about warlords? Is it not in their interest to regain the ability to speculate? It can be said that what is happening is like a temporary settlement with warlords so they would reduce from the activity of speculation, and this will not be permanent unless profitable alternatives were secured for them. This is what happened in 2017 -2018, when speculation was controlled and the dollar stabilized, as warlords started money-laundering with major real estate activities, such as in the projects of Kafar Sousah, buying the largest hotels and others, and even in their partnerships and their benefits from sovereign contracts.
Today, also, the new investment law can be comprehended as a framework for those people to enhance their transfer from shadow lords to business men, which is expected to happen. However, "Man does not attain all that his heart desires" as this issue is also conditional to politics: regional and international. In addition, in comparison with the period of 2017 -2018, the temporary "phase of stability and business" has stopped due to the international situation since 2019: intensifying sanctions, standstill of Syrian political settlement, the continuous withdrawal and escape of money to UAE, Lebanon and others. Hence, warlords went back to expand their illegal activity, increasing pressure on society, production, and the Syrian pound to a large extent.
So, what about today? The transfer of warlords to be described as "peaceful investors" is a process that will only happen if the profits of peace were guaranteed by opening up the door to "reconstruction" funds, through which they expect the influx of Syrian funds abroad and the funds of the Gulf and other international partners. This is because if the warlords possess the resources of Syria and its destruction and want to offer them for sale, there must be a “worthy buyer”, and without foreign partnerships and money, their peaceful transfer of investment will not happen, and they will return to their profitable criminal activity, including: speculating on the Syrian pound.
Will money flows from abroad begin? Things here return to politics again, as without an international and regional settlement managed and even instigated by the Syrians, the country will not witness any significant change: no lifting of sanctions, no indication for foreign investors of a serious safety for their investments, and no permanent political stability. Most importantly, without a political settlement, most Syrians will not be able to stand up to a reality that lies above their hearts, nor defuse the situation represented by: hunger, deprivation, and the displacement of millions.