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The Assad government is feeling the pinch, but will it bring down the regime?
In the second of a two-part series on the decline of the Syrian economy since the pro-democracy uprising and the subsequent crackdown began, GlobalPost looks at President Bashar al-Assad’s efforts to stabilize the economy amid Western sanctions and whether it will hold up over the coming months.
BEIRUT, Lebanon — After six months of attempting to crush a democratic uprising, the Syrian government is starting to feel the economic strain from sanctions and a ban on oil exports.
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“There are no positive assessments,” one Syrian businessman in Damascus told GlobalPost. “Some say things can get by another three to six months, but after the first quarter of 2012, the economy can only go one way.”
Managing inflation has been key to the Assad regime’s economic containment policy, say businessmen, analysts and diplomats.
In late August, Adib Mayaleh, Syria’s Central Bank governor, told Bloomberg that $2 billion had been spent defending the Syrian pound since the start of the uprising in mid-March, out of a fund designated for that purpose totalling $5 billion.
Mayaleh said the local currency had lost just 3 percent against the dollar during the same period. Independent analysts put the real inflation on the Syrian pound since the uprising at between 10 to 17 percent.
Mohammed Khaled, a wealthy importer from Homs who serviced government contracts, and now works in exile for the opposition, said the Central Bank had been able to maintain an official rate of 47 pounds to the dollar only through significant hard-currency injections by regime stalwarts.
Chief among these, said Khaled, is Rami Makhlouf, first cousin of President Assad and a man who became Syria’s wealthiest businessman under Assad’s 11-year rule. Khaled said that Makhlouf took $3 billion to the Central Bank in mid-May, as the Syrian pound was dropping in value.
A Western diplomat in Damascus who follows the economy confirmed hearing reports of this account, adding that Makhlouf had also pressured leading Syrian businessmen to do the same.
Still, the cost of keeping inflation at bay for six months has clearly begun to take its toll on Syria’s finances.
On Sept. 24, the government announced a ban on imports of all goods carrying a tariff over 5 percent, a move the minister of economy and trade acknowledged was aimed at “preserving foreign reserves,” which most economists put at between $17 billion and $18 billion.
The ban, which affected foreign consumer goods and cars but not raw materials and foodstuffs, was a dramatic reversal of Assad’s policy to open up Syria’s economy after decades of a Soviet-style ban on imports.
The move left many Syrian businessmen — who make their money importing goods for retail, manufacture or re-export — stranded.
Average prices rose by 30 percent on nearly all imported consumer goods, according to residents of Damascus.
Coffee and flour shot up by 50 percent. The price of heating oil, on which Syrians will rely in the coming winter to heat their homes, is also set to spike.
“Syria is in more trouble than its officials would like to admit,” wrote Syrian political analyst Sami Moubayed.
The import ban, he said, will drive a “permanent wedge” between the government and the business elite, which until now had backed the regime because they had flourished under Assad’s pro-business policies.
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In an unusually critical public move, Aleppo's Chamber of Industry said in a statement the import ban would “inflict extreme damage on the national economy” and undermine the competitiveness of local industry.
Shortly afterward, the regime announced a 50 percent increase in its budget for 2012, worrying some analysts that it will begin printing money to cover costs, further spiking inflation.
International sanctions biting