(In Defense) of the Government and on the Offensive against (the Whale Floating in the Pond)

(In Defense) of the Government and on the Offensive against (the Whale Floating in the Pond)

The Minister of Economy appeared in an interview on the Syrian Satellite Channel on March 24, 2021 talking about the economic situation, and his speech is said to ignore the (elephant in the room) or perhaps more precisely the (whale floating in the pond) because it describes our situation better! He spoke at length about the government’s endeavors and efforts, and ignored the fact that the government’s actions are practically without effect! However, this article is considered (in defense of the government) being an apparatus with limited capabilities that has to carry the burdens of others.

Although the Minister of Economy has ignored terrible facts, he had the right with what he has said, and he had the right to ignore what is out of the control of his government. The main problem is in dealing with the conditions of a country that has been living 10 years of war, and under criminal sanctions that are related to two aspects: politics, and the de facto powers from warlords. Neither the first nor the second is controlled by the government, rather it operates under them.

So, what are the basic necessities, why are government procedures limited, and what are the actual exits?

Saving the Country – the Syrian Pound – Ending Hunger

If the main goal is to save the country by ending hunger and restoring the ability of millions to continue, then the main economic way to do that is by lowering prices, i.e.: saving the Syrian pound from the gradual drowning during all the years of the crisis, and from the continuous free fall since 2019. The key to the solution has two main locks, and without them there will be no hope for the Syrian pound. The first: increasing production, and turning the bloc of the Syrian pound in the market to real investments, goods and employment. The second: reducing the demand for the dollar, and that is what the government said it is doing, as it is reducing the bloc of imports on the one hand, and is locally implementing programs to motivate the production of import alternatives.


However, from the speech of the Minister of Economics, the extent of the crisis becomes clear. Producing food locally in Syria is 80 -85% related to import, hence, to the dollar, and this includes seeds, fertilizers, fuel, medication and disease control requirements, fodder, plastic granules, greenhouses, etc. According to this, the prices of basic materials that determine hunger from satiety are related to the persistence of import from abroad and in USD! While the process of producing these materials locally is not working, as there is no demand for the industrial investment of alternatives. How can this dilemma be overcome then when it is not impossible to solve! Practically, there are only two ways, and they are related to one another. The first: importing basic necessities with a currency other than the dollar or outside the system of international sanctions, and with a mechanism that guarantees the stability of the price. The second: overcoming serious obstacles to expanding local production for the largest possible part of imports. Both goals are beyond the means and the responsibilities of the government.

Importing Necessities by Overcoming Sanctions and Liberal Policies

Before going into this detail, the Minister of Economy referred to the government reducing imports by 36%, an amount that approximates $ 2.3 billion between 2018 – 2020, and with a larger annual rate in the first two months of 2021. The Minister considers that this reduction aims to reduce the demand for the dollar, but this process did not succeed in halting the deterioration of the value of the Syrian pound and the increase of the dollar. In fact, it may have succeeded in reducing the level of the flow of the basics, which we see in the lack of energy supplies, quantities of wheat, and the decline in securing the requirements of production for the state’s factories (currently, the cable factory and the detergent plant are temporarily suspended due to the lack of raw materials)! Such solutions may be a solution for the crisis by generating a larger crisis, and it is necessary to keep importing the basics that are not locally produced, and with a sufficient amount that ensures continuity. The most important guarantee to mitigate the effect of import on the increase of the dollar, is for it to be conducted with a currency other than the dollar, and this is the main key to overcoming sanctions and mitigating their costs. Kassioun has talked about this issue in detail in many of its files, but it is enough to mention the following aspects: Importing with a currency other than the dollar may not necessarily mean using local currencies in trading, but it primarily means centralizing foreign trade to take place within a monetary and banking system that is not monitored, that is, not controlled by the US sanctions and the West in general. In such case, even if the dollar or the Euro were used, the objective may be achieved. Having an account close to $ 2-3 billion for trade exchange that covers 75% of our import and more than 100% of the government import, and putting it in independent and open banks with sanctioned countries, such as: Iran and Russia, or that are willing to overcome sanctions, such as: China, would mean sparing government import from the predominance of brokers. This guarantees a larger flow of goods, such as: energy, provides the risk royalty they impose of up to 40-50% of the costs, and secures regular contracts that are overseen by two government parties, i.e., all their costs need to be justified, and closes a door to corruption. Securing those funds is also beyond the means of the government, which seems to have lost the largest part of its foreign exchange balance throughout years of mismanagement of foreign exchange. It requires procedures ranging from raising the official exchange rate of remittances to regaining the flow of foreign remittances, which were never less than $ 3 billion annually according to the estimates of 2017, so they would enter the regular banking system instead of the black market, and connecting these flows with the relationships between local banks, the Central Bank, and the aforementioned independent bank in exchange for returns for local banks. Moreover, the account can be secured with loan credits with guarantee of reserve gold, which constitutes one of the possibilities of opening a reserve account in Chinese Yuan; the process carried out by more than 35 central banks across the world, and which increases the guarantee of not being exposed to the risk of sanctions. Such a process can provide the state apparatus with the flow of imported basic goods, such as: energy, wheat, and the means of production and equipment to revive general industry, which owns the production base of most of import alternatives. This is in addition to the private sector operating in Syria, which is active in production and export, and which imports most of its needs from China, as this segment may see in transferring part of their accounts in foreign exchange from abroad to a central bank account an opportunity to reduce banking costs and to reduce production imports. Does the government own the decision in such procedures? Of course not, as this depends on economic policies and the serious approach towards the East. Just like how the powers of the West have prevented importing energy from Iran using local currencies in Lebanon, prevented the approval of Chinese initiatives for investing in infrastructure, and prevented connecting northern and southern Lebanon with a railway, similar powers are preventing such approaches in Syria, but without the media hype which reveals Lebanese contradictions in every detail, as things take place in Syria in absolute silence. However, this silence does not prevent the conclusion that influential powers associated with the West in Syria are reluctant to take serious procedures that are contrary to liberal-Western economic policy, as they fear for their investments and assets abroad, which remain as tools of leverage and association! It should be noted that the Syrian obstruction of these procedures becomes clear in some details, for example: since the beginning of 2019, signing an agreement to establish a Syrian-Iranian banking entity based in Damascus was discussed to enhance trade and overcome sanctions, but it has not seen the light, and before that, product barter agreements between the two countries were obstructed. There was also another incident that has come to be known from 2013 when the Syrian party refused the Russian offer of buying a Greek cargo ship carrying the Russian flag that provides continuous flow of energy, on the grounds that the cost of buying the ship, which did not exceed $ 15 million back then, was not available. In terms of the relationship with China, its foreign minister has toured the Middle East and signed a strategic investment partnership with Iran, the country on which the most severe international sanctions are imposed, with amounts which the previously circulated draft agreement indicates it could be close to $ 400 million in 25 years. That is, the opportunity is open with China for a government economic import artery, which is difficult to impose sanctions on its banking system while the system of the companies of the superpower are in it!

Obstructing Import Alternatives and Production - The Significance of Warlords

The other side of liberalizing food production and general production of basics in Syria from the predominance of the dollar is retrieving the production base that replaces imports. Some will say: this is what the government does in the program of import alternatives, however: according to this government program more than 65 imported commodities can be replaced with an alternative that is produced by local industries, from yeast to plastic granules to types of medications and many others, which reduce 70% of current imports. So, what is the government doing to make this production? It only provides incentives, i.e.: if an investor decided to produce infant formula in Syria instead of importing it, the government provides him with facilities: a study on the project, lands in industrial cities, supports loan interests for him, so instead of paying 13% he pays 7%, and other facilities. The question remains: why don’t local and Syrian investor abroad undertake at least this investment opportunity? Despite everything, Syria represents a great opportunity, according to the laws of profit and according to estimates of Syrian economists and industrialists, because it is a market that needs everything, and every additional income generated and distributed can be transformed into consumption due to the large shortage of consumer capabilities, which theoretically secures the high profit rate! So why is the (government's movement) not working? The reason is simple and also legal, as the high profit rate which is theoretically available is practically unavailable, that is, there is something that makes this profit erode, increases the costs considerably, and prevents investors from taking risks and overcoming sanctions. First: the lack of energy and the cessation caused by the periodic interruption of the fuel and electricity artery are a loss and a cost that reduces the effectiveness of production processes, which is an issue to be solved as mentioned above through securing financial resources for the government to import directly and provide flow. Second: the unofficial costs caused by the activity of warlords and influential people, whom the Syrians call: (the thieves of the country). They are practically contributing to the costs of production processes, hence, the decline in profit directly or indirectly. So, when they are active in smuggling, which we have estimated its revenues by approximately $ 500 million from the entry of Turkish goods only, they are competing with locally manufactured products and moving them aside. In addition, when they (loot) on roads, entrances to industrial cities and al-Hal markets (Souq al-Hal), they practically get a share of every transfer and transit. Moreover, the activity of the shadow sector occupied by them has reached exceptional levels in the field of drugs and captagon in particular, in addition to hash, which can reach $ 16 million and its international and regional confiscation for just one year have approximated $ 1,6 million: (17% of which came out of the Syrian ports!). They also control the bloc of irregular remittances that reach the black market, which approximates $ 3 billion annually. They are also active in smuggling basic materials abroad, such as: the sheep sector, to name a few. With all this solvency and the dollar bloc under their hands, they are also becoming the main faces of import because they are practically the most capable, and they are practically associated with the monopoly on the pricing of basic imports. They are speculating on the Syrian pound to collect dollars from the market, and to smuggle their money regularly abroad, as they are the main factor of the instability of the Syrian pound and they are undertaking this activity using the combination of influence and weapons.

Finally, the instability of the value of the Syrian pound, the persistence of the phenomenon of speculation on it, and the shift of the market to pricing completely in USD, also contribute to the disruption of production, as waves of speculation lead to interruptions in the trading process with each deterioration of the Syrian pound and increase in the dollar. Supplies get disrupted or reduced due to the change in the prices of imported production requirements and the cessation of large warehouses from moving their goods in the market. Hence, the processes of production and sales cease, which in turn reduces cash turnover and profit rate. Perhaps the most repeated saying by business owners in the last two years was: (we cease, to see how much it will reach), and what is meant here is, of course, the dollar. The process is also solved in total change of policies through securing the basics apart from the fluctuations of the dollar and with fixed prices of it, so at least food can be set free from the weight of the dollar, which now constitutes more than 60% of the basic consumption basket for most of Syrian families, if not 100% for a significant segment. In such circumstances, investment expansions and the establishment of industries to replace imports will not succeed, and narrow individual attempts will remain at the minimum to avoid risks. That is because any significant level of production and profit that covers an important part of the market's needs puts its investors in confrontation with the shadow sector, and then it has to choose one of two: either to work under them, or to withdraw quietly. This may explain the situation that has been discussed about an industrialist who obtained the license of an infant formula factory, and was unable to obtain land in the industrial zone despite the promises of the government, which got out into the open, while other situations remained unknown.

What the government has of capacities and capabilities do not exceed certain limits, and it moves in a very narrow context: it is governed by a liberal economic mentality that cannot, and has no interest in serious confrontation and making necessary changes (to withstand). Therefore, we do not see serious political and monetary procedures in the face of sanctions and the removal of the dollar. Moreover, the government is maneuvering in a narrow market, which is the regular market for money trading and economic activity, while the enormous activity of the shadow sector, run by warlords and their connections with major powers of influence, get out of its control. Those whom a government cannot deal with, as they are practically a fait accompli authority and rule, and cannot be confronted within the narrow executive and legislative powers of the government and the (people's assembly)! This can only be done within the framework of higher authorities, and political security procedures that only result from broad social pressure, while economic procedures are actually of no use. Finally, not in defense of the government, but on the offensive against the real ignored reasons and the (floating whale) in an economy that has become shallow and a country that the US wants a quagmire; the purpose which is achieved by the whales of money and influence.

 

Last modified on Wednesday, 07 April 2021 16:08
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