Syrian businessmen, for decades able to count on neighboring Lebanon as a conduit for foreign goods and transactions, are now struggling within new confines – threatening further damage to an economy trying to claw its way back after nine years of war.
Bashar al-Assad’s government, intent on salvaging the spiraling Syrian currency amid a financial crisis next door, has targeted everything from real estate transactions to Twix bars in a bid to stop the bleed.
“Just look at what’s on display,” quipped Mustapha, a mini-market owner in central Damascus.
His shelves, once stocked with popular imported chocolate brands, now host a pared-down offering of local knock-offs.
“I used to sell Twix and Nutella, which I’d buy from Lebanon. I cannot do that anymore, because at any moment they can break into my shop and punish me for not selling Syrian chocolate,” he told Asia Times.
Not only that, but he soon may not be able to find Nutella in Lebanon.
Lebanon, which for the past half-century served as an open market for the tightly-controlled economy of Syria and whose banks offered a wartime refuge for Syrian savings, is now witnessing financial meltdown.
In recent months, as Lebanon’s vaunted dollar peg has come undone – its ATMs and banks drained of foreign currency – Syrian authorities have redoubled their efforts to clamp down on imports and stem the bleed of US dollars.
Money exchange offices offering dollars at black market rates are a particular target.
A money changer in the Muhajireen district of Damascus, known for buying and selling dollars under the counter, was recently caught up in a sting operation that lasted an entire business day.
Undercover police “entered the shop, and instructed him to remain silent and not disclose their identities,” according to a client with knowledge of the incident.
“They then arrested every single client walking in to exchange dollars, filling up an entire bus by the day’s end,” he told Asia Times, giving only his first name Abdulkareem.
“They also took the shop owner himself,” he added.
A presidential decree passed in January makes it a capital offense to buy or sell goods in US dollars, with a seven-year prison penalty.
“It’s even illegal now to communicate anything about the black-market rate on WhatsApp or to post it on Facebook,” said Fatma, a Syrian housewife who exchanges money to make additional income.
The new law forces anyone selling property to have the payment deposited in Syrian currency at a state-run bank before ownership can be transferred, thus ending the wartime practice of selling real estate in US dollars and depositing the money at Lebanese banks.
Halting Chinese imports
The impact of Lebanon’s ongoing financial meltdown has been felt from the upper-crust of Syria’s moneyed elite with accounts in Lebanon down to seasonal laborers.
Syrian construction workers who used to earn dollar-pegged currency in Lebanon to send home to their families, for example, are now forced to convert Lebanese pounds at a roughly one-third loss.
As of October, Syrian businesses can no longer transfer dollars via Lebanon, due to local banking regulations meant to keep foreign reserves in the country. This means they are almost entirely blocked from trade with the outside world, with the main exceptions of Russia and Iran.
Lebanese banks have meanwhile placed strict limitations on dollar withdrawals, leaving even Syrians who can regularly travel back and forth unable to take out more than $300 from their own branches each week.
For high-net worth individuals with accounts over $100,000 in Lebanese banks, the withdrawal limit is still a maximum of $1,000 per week.
A wealthy Syrian businessman who owns a chain of shops in Marjeh Square in central Damascus told Asia Times he has been cut off from a nearly $1 million US dollar account at a Lebanese bank.
Unable to withdraw his $700,000 or transfer the money abroad, he proposed to cut a deal with the bank: “I offered to let them keep 30% of it and to release the rest of the amount, but they said no,” he told Asia Times.
The result? “I have halted all imports from China for the year 2020. I can only sell what’s already in my warehouse.”
Customers priced out
Making matters worse is rapid inflation in Syria. Since the businessman purchased his current stock at a rate of 500 Syrian pounds to the dollar, the value of the Syrian currency has dropped by half.
“I trade in electronic devices, from plugs and sockets to cords, lightbulbs, chargers, and batteries. What used to sell on the local market for the equivalent of $10 (5,000 SP) now has to be priced at 10,000 SP.
That price increase means a shrinking customer pool. This businessman estimates he has lost nearly three-quarters of his clients.
“This crisis has led to a freeze of Syrian deposits in Lebanese banks, which represent some 20% of deposits,” said Nasser Saidi, a prominent Lebanese economist who has previously served as economy minister and vice governor of the Central Bank of Lebanon.
Syrian clients do have the option of withdrawing their money from ATMs in Lebanese currency at the official exchange rate of just under 1,600 Lebanese pounds to the US dollar. The problem is that Syrian exchange offices do not deal in Lebanese currency, so Lebanese pounds must be converted to US dollars at black market prices before crossing the border. Those rates are now topping 2,200 Lebanese pounds to the dollar.
At the same time, Lebanese nationals desperate for dollars have been going to Damascus to buy them up at any rate available, causing their value to go through the roof.
Speaking to Asia Times, economist Saidi said: “Lebanon’s liquidity and financial crisis has become a Syrian liquidity and financial crisis. Inflation in both Lebanon and Syria has ratcheted up to about 30% over the past month.”
For Syrian manufacturers, it has become impossible to determine cost and margin of profit, especially for goods imported with difficulty from abroad.
Unable to price their products because of the fluctuating rates and deteriorating currency, many Syrians businesses have simply stopped producing or selling anything.
“It’s going to be a rough road ahead. Dollars are becoming a very scarce commodity. Its beyond anybody’s ability to control it,” Syrian banker George Saghir told Asia Times.
The vacuum of dollars, he says, is now beyond the state’s ability to control.