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Shackled: Syria’s uprising exacts heavy toll across Economy
Businessmen and analysts say the Syrian economy is shrinking; the IMF forecast a 2 percent contraction for Syria in 2011, in contrast to 3 percent growth which it predicted earlier this year
October 14, 2011 2:00 by Reuters
Last month authorities imposed a ban on most imports in an effort to save foreign currency reserves, but this was revoked days later after soaring domestic prices provoked outrage in the business community, which has close ties to the government.
“The ban was short-sighted. It would have led to unemployment and encouraged smuggling. Even now prices have not gone down sufficiently as yet,” said Sukkar, who predicted the economy would suffer stagflation — stagnant growth and high inflation — in coming months.
The authorities subsequently announced the central bank would reduce its role in financing imports. Minister of Economy and Trade Mohammad Nidal al-Shaar said the government had made a “mistake by financing everything in the past and is now leaving businessmen to seek other financing outlets”.
Now, monetary authorities will only help importers of basic commodities and essential foodstuffs with tariffs of under 1 percent, Shaar said.
“Let’s say if we were financing 100 million before, now we are only financing 25 or 27 million so as to prevent the depletion of Syria’s currency reserves, which is our wealth, while continuing to finance the essentials and food requirements of people.
“Frankly, I am against financing the imports of the private sector by the central bank. This is not its job,” Shaar added.
This has caused private businessmen to worry about access to trade financing. In more normal conditions, private banks could be expected to step in and play a bigger role, but this may be difficult as the political uncertainty causes hoarding of foreign currency.
A run on the currency, the Syrian pound, was only averted after the central bank raised interest rates. Bankers estimate Syria’s reserves have dropped by at least $2 billion this year as the central bank has pumped in foreign currency in an attempt to halt the pound’s fall in the black market.
Despite its efforts, pressure has been mounting on the pound, which has been changing hands in the black market at more than 52 to the dollar. In recent weeks authorities have allowed the official exchange rate to rise just above 49 pounds from a previously fixed rate of 47.4.
“There is a shortage of dollars in the market and it’s gone up almost 10 percent in the last few weeks. No banks or the state are selling dollars and you have to go to the black market, where rates are going up,” said Ghaith al-Mufti, a local businessman.
There is one bright spot for Syria’s economy this year: the end of a drought that has ravaged crops over the last few years. Wheat production looks set to pick up to about 4 million tonnes in 2011 from 3.4 million last year.
But this is unlikely to offset the damage to the economy’s medium-term prospects as the political uncertainty deters investment.
Big investment projects to which Gulf investors have pledged billions of dollars — real estate developments and shopping complexes — have not been formally suspended. But at least some of them appear to have been put on hold as local residents report little or no construction activity at the sites.
In the fertile southern province of Houran, the unrest has disrupted an important cash cow for state coffers in the form of taxes that range from construction permits to electricity and water bills, residents say.
So far many members of Syria’s powerful business elite have tacitly backed the regime. Merchants in Damascus and Aleppo, and landowners in Homs and Hama, need to cooperate with officials of Assad’s dominant Alawite minority to conduct their businesses.
But as the economic slump continues, it raises the possibility that businessmen will become more ambivalent or even critical of the government.
October 14, 2011 | Analysis