As James Carville used to say, "it's the economy stupid."
The thing is, Syria's president is not dumb. He is well aware that the economy could undermine him. President Bashar al-Assad just might not be able to stop it. Syria's economy is teetering on the verge of collapse and so far there are few signs Assad will be able to regain control of it.
Up until now, Assad's regime has proven it can withstand hundreds of protests, mass demonstrations, and the growing tide of anti-Assad sentiment through crackdowns, an aggressive security apparatus, and a campaign to silence critics by any force necessary.
What the government is finding out, however, is that you can't shoot, torture, or scare an economy into stabilizing.
Even Assad himself has acknowledged the threat of economic demise. In a speech to the country in late June, Syria's president admitted that a "weakness or collapse of the Syrian economy" was a major threat to the nation. Since then, the European Union and Turkey have added and tightened sanctions on Syria, and further Arab League sanctions are pending.
According to Syrian economist Samir Seifan, "The global financial crisis had a moderate effect on Syria," but due to the current unrest, "people are only spending on basic items, which is resulting in a smaller economy. Foreign and local investments are also dwindling due to uncertainty."
Investments are not the only thing that are shrinking. According to Institute of International Finance, a global bank group, Syria's $52 billion economy is set to contract by 3% (and possibly more if protests worsen). This was in contrast to an earlier forecast of 3% growth similar to last year's output.
The dwindling economy and foreign sanctions are scaring foreign investors away in droves. The Qatari Diar real estate company recently announced it is terminating two of its projects in Syria. Another Qatari firm with projects in Syria, Qatar Electricity and Water Company, decided to delay building two major power plants in the troubled country, costing the al-Assad regime a $900 million project. Another $500 million dollar has been postponed by Emaar Properties as well.
The result has left the Syrian pound in tatters. Since Assad's June speech, the pound's exchange rate to the dollar has fallen by over 8% (and dropping) to 53:1. Rumors have circled that losses on the black market exceeded 17% and only slowed after after the Syrian central bank intervened. Syria's official reserves, which currently amount to around $18 billion, have been falling at a rate of nearly $80 million a week. To prevent a total uncontrollable downward spiral, the central bank has been pumping foreign currencies into the Syrian pound exchange rate on the black market.
The government-controlled bank has also banned the withdrawal of totals more than $5,000 as well as increased interest on bank deposits from 7% to 9% while halving reserve requirements from 10% to 5%, according to economist Nassib Ghobril.
Intended to encourage saving for consumers while stimulating lending, such measures have done little to restore confidence. According to reports, Syrian bankers have revealed a continuing flight of capital corresponding to roughly $680 million from private banks in the past two months.
Expediting the problem are European sanctions which include, "An export ban on key technology for oil-and-gas industries in Syria, a ban on trade in Syrian public bonds, and a prohibition on Syrian banks opening new branches in the EU or entering joint ventures with European financial firms," and Turkish sanctions which "freeze the Syrian government’s financial assets, impose a travel ban on senior Syrian officials and cut off transactions with the country’s central bank." These measures to be implemented in the coming days will only further cripple the Syrian government's attempts to salvage and stabilize their economy.
The results have affected thousands of Syrians personally. Already nearly a third of Syrians live below the poverty line and Syria's main industries have been the hardest hit. Tourism, which has increased steadily over the past several years, has ground to a near halt because of the unrest. So too has manufacturing. According to one merchant in Aleppo who spoke to Reuters, "Business has slowed down massively, many factories in Aleppo, especially textiles, have been laying off workers, putting them on reduced pay or reduced hours. Hotels are empty, and the thousands of informal workers in the sector are now unemployed."
For its part, in an effort to stem the protests, aid the economy, and increase public support, the government has reinstituted fuel subsidies for the poor as well as upped salaries for public workers. Cash transfers have also become available to low-income families and those out of work. However, so far, increased government spending and Assad's personal plea for Syrians to help save their economy have not worked.
More than six months into the unrest, it is the demonstrators who continue to publicly pressure al-Assad to go. Fortunately, it's the economy that might soon force him to.
Photo Credit: Wikimedia Commons