The national flag with an image of Syrian President Bashar al-Assad is pinned to a barrow selling green plums in the capital Damascus on 30 April 011.
Syria's two main cities Damascus and Aleppo, home of the well-established merchant class, have so far remained quiet since the outbreak of anti-government protests in mid-March. However, the country's rapidly depleting Foreign Currency (FX) Reserves might prove to be a game changer. If the Syrian currency collapses and hyperinflation kicks in, the merchants might become agitated and join the protests, further shaking President Bashar Al-Assad's regime.
Syria's soviet-style administration does not divulge its central bank's Foreign Currency (FX) Reserves. Over the past decade, the bank has pegged the Syrian pound (Lira) on a conversion rate of around 50 pounds to the dollar. Since the outbreak of anti-Assad protests, and fearing the collapse of their national currency, the Syrians have been converting their savings into dollars, thus putting further strain on the nation's solvency.
Damascus has so far remained silent on the possibility of a Lira collapse with government officials pretending that the country's reserves could safely protect the national currency.
By mid April, reports from inside Syria put the black market conversion rate at 75 pounds to the dollar, indicating that the Lira's worth was cut by half.
Another sign of depleting FX reserves was the government's authorization of three state-owned banks to "sell foreign currency," according to the official news agency SANA and Bloomberg. "Popular Credit Bank, Savings Bank and Industrial Bank also can accept foreign currency deposits ranging from one month to 12 months," Bloomberg said, citing a central bank decision on 11 April. To stop FX hemorrhaging, the three banks were instructed to take deposits in dollars and allow withdrawals only in Syrian pounds.
Images of violence from Syria have added insult to injury by resulting in a drastic decrease in tourism, which according to The Financial Times, had "increased by 40 percent last year, contributing an estimated 15 per cent of GDP and generating more than $7 billion of revenues."
The British paper reported: "Now the hotels of Damascus and Aleppo stand almost empty." It added: "An auction for Syria’s third mobile phone license, scheduled to take place this month, and seen as a key indicator of foreign companies’ interest in the Syrian market, was postponed indefinitely after three companies pulled out."
Foreign Direct Investments (FDI) also saw a sharp decrease with cross-border trade taking a hit by transport delays caused by security-related road closures. Avo Tutunjian, a Lebanese businessman who exports electrical goods to Syria told The Financial Times that he was "slowing down new investments with Syrian partners, explaining, we’re in a ‘wait and see’ phase."
So dire Syria's economic situation has become that on 3 May, Syrians inside the country reported that the government had issued a ban on converting Liras into foreign currencies. Exempted were sections of the population who could prove their need for foreign money, such as families who finance the education or health treatment of their members outside of Syria.
Samir Saifan, a Syrian economist with ties to the regime, told The Financial Times: "It depends on how long it lasts... [i]f it is just a few weeks, it’s manageable. If it lasts for more time, we don’t know.”
If "it lasts," Syria's merchant class might give up on its "wait-and-see" phase and might find itself seeking the ouster of Bashar Al-Assad in order to protect its interests. If, despite the regime's violent repression, the rallies in Syria continue beyond the end of May, Assad might find himself in a fold. He might not be able to pay civil and military salaries. Defections might ensue, and with merchants joining the rebels, his position as the country's lone leader might become untenable.
According to USIP analyst Mona Yacoubian: "Unlike Iran, which has thus far managed its isolation, Syria does not possess the vast natural resource wealth necessary to sustain itself over a lengthy period as an international pariah. On the contrary, even prior to the current unrest, the Syrian economy was reeling from years of drought and economic mismanagement." Writing in Foreign Policy, she argued: "[I]t is not clear that [Syria's international] ties will be sufficient to compensate for any shortfall in foreign investment and increased economic isolation."