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Syrian pound plunges to record low on black market

DAMASCUS: The Syrian pound has plunged to a six-year low on the black market, trading Wednesday at 71 Syrian pounds against the dollar in a sign of growing economic woes. “The pound traded on the black market at 65 pounds against the dollar Sunday, before falling to 67 Monday and 71 this morning,” said the owner of a Damascus foreign exchange bureau who gave his name as Maher.

The currency traded officially at a fairly stable 47 to the dollar between 2006 and March 2011, when anti-regime protests erupted. Since July, it has swung between 58 and 60 before tumbling in the past two weeks.

Jihad Yazigi, editor-in-chief of The Syria Report, said “the recent accelerated plunge of the pound is directly linked to the political crisis, which affects the economy, as well as European sanctions on Syria’s oil exports.”

“Sanctions against crude came into effect in November and we have since seen an accelerated devaluation of the pound,” Yazigi said, adding that “the government’s foreign exchange earnings are down because oil accounted for a quarter of Syrian exports.”

The Central Bank reacted quickly in a bid to stem the flight of capital, authorizing savings in dollars and euros for the first time provided that the amount is held for at least six months.

It has also raised the interest rate for deposits in Syrian pounds from between 5 percent and 7 percent before the crisis to up to 11 percent now, depending on the duration of savings.

The depreciation has affected Syrians’ purchasing power although the authorities have until now managed to control inflation. With respects to inflation and GDP, the government has still not made public its 2011 figures.

“On the other hand, the devaluation of the pound gives local industry an opportunity to increase export of its products, which have become less expensive,” said Samer Habib, director of a private bank.

The Arab League imposed economic sanctions on Syria on Nov. 27 but these have not been implemented by all of its 22 members.

The sanctions include a freeze of commercial transactions with the Syrian government and of its bank accounts in Arab countries.

Trade with Arab countries in 2009 represented 52.5 percent of Syria’s exports and 16.4 percent of its imports.

Iraq and Lebanon, who are not implementing Arab League measures against their neighbor, account for 31.4 percent of Syrian exports and 12.7 percent of imports.

“The devaluation of the pound is also due to the immaturity of the Syrian market and to speculation,” Habib told AFP.

Indeed, the official rate of the pound encouraged speculation, spurred by fluctuations in the foreign exchange market.

“During the first weeks of the crisis, clients bought dollars or euros at the official rate to resell them in the black market,” said Maher.

In response, the authorities have forbidden the sale of dollars by banks, with some exceptions, including Syrians who wish to travel abroad for medical treatment or study.

Economy Minister Mohammad al-Shaar recently declared that the government would give priority to conserving foreign exchange reserves.

“It is a way of saying that the government is not willing to defend the pound at any price,” said Yazigi.

But “the plunge of the pound is not irreversible,” said Samer Habib, recalling the “ephemeral devaluation of the local currency in 2006, during the investigation of Lebanese ex-Prime Minister Rafik Hariri, which raised the specter of a political and economic crisis in Syria.”

“The fate of the pound hangs on the duration of the crisis,” added the banker.

 
A version of this article appeared in the print edition of The Daily Star on January 19, 2012, on page 4.
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