Link between Lebanon and Syria’s economies spells disaster for both

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Lebanon’s and Syria’s economies are inextricably linked, and now a deepening economic crisis in Lebanon is spurring similar consequences across the border where the value of both local currencies is falling.

Currently, both countries are seeing massive inflation and rapidly devaluating currencies along with dollar shortages and capital controls instituted by the Lebanese banks that have forced Syrian businesses to search for an alternative way to pay for their imported goods. Despite efforts being made by the Lebanese government toward solving the crisis, the economy is likely to continue to spiral downward, taking Syria along with it.

With both countries facing a dollar shortage, the exchange rates for both currencies have fallen. The Lebanese lira, officially pegged at 1,507 to $1 is now trading on the parallel market for rates above 4,000. Meanwhile, the Syrian pound has fallen from the standard 435 to the dollar to 1,700-1,900 on the parallel market.

This, according to Samir Ata, a Syrian economist, shows how “the dollar market in both countries are very connected.”

Subsequent price inflation has forced some Syrian businesses to stop buying certain products as they would lose money.

Lebanese pound. (AP)

Lebanese pound. (AP)

 

Ata expects that “we can go to a real famine in Syria in the near future if things continue like this” especially with the situation in Lebanon.

In order to create some economic relief, Lebanon began negotiations with the Intentional Monetary Fund (IMF) in order to obtain $10 billion in aid. However, these negotiations could impact Syria as well.

 

“I think that whatever the IMF asks, there will be a US condition on closing the borders with Syria, and this will make things worse,” Ata said.

This would put the Lebanese government in a precarious position where they could receive the desperately needed aid from the IMF, but it would deliver a crippling blow to the Syrian economy.

The situation in either country is unlikely to improve soon, and after nearly a decade of conflict, Syria has become more dependent on Lebanon than ever before.

 

As Syria’s civil war kicked off nine years ago, businesses there became increasingly dependent on Lebanon to import goods and maintain access to foreign currencies.

Major production sectors were destroyed in Syria, creating the need to import goods from abroad, as they could no longer be produced locally. But sanctions meant it was nearly impossible to have goods brought directly into Syria as businesses that brought them could have sanctions slapped on them for doing so.

 

For the companies selling the goods, it is more profitable to do business with the US rather than potentially facing economic consequences for selling directly to Syria.

“You have more problems because of the sanctions,” Joseph Daher, a Swiss-Syrian academic at the European University Institute in Florence, Italy, explained to Al Arabiya English, “Even the port in Tartus, a shipping company will not ship to these areas because they are afraid of the sanctions.”

Daher said the lack of clarity and the nature of US sanctions means nearly anyone who sells to Syria can be hit with sanctions – even if the product isn’t on the sanctions list or if merchants have a license. Many have avoided dealing with Syria in fear of repercussions.

 

“Obviously the US market is more important than the Syrian market,” he said.

Bypass found in Lebanon’s ports

Lebanon’s ports therefore became necessary to bypass sanctions and get products into Syria.

According to Daher, Syrian businesses will import a good to Lebanon with that being listed as its final destination. However, after it arrives, it is then transported to Syria.

Shipping containers are seen stacked at Beirut's port, during a countrywide lockdown to prevent the spread of the coronavirus disease (COVID-19) in Beirut, Lebanon, April 8, 2020. (Reuters)Shipping containers are seen stacked at Beirut’s port, during a countrywide lockdown to prevent the spread of the coronavirus disease (COVID-19) in Beirut, Lebanon, April 8, 2020. (Reuters)

“They take another boat through a new contract,” Daher said. “[They] buy it [the product] in Lebanon, or another agency purchases this good, and they transfer it to Syria, also through boat, to Latakia or Tartus, [which are port cities]. This could also be through land whether through smuggling or officially.”

Lebanon has also been essential for businesses to have access to foreign currencies to pay for their imports since the civil war has caused foreign currency reserves to dwindle in Syria. Because of this, many Syrian businesses have bank accounts at Lebanese banks where they have easier access to dollars that they then use for imports.

But as Lebanon’s economic crisis began, banks put in place ad hoc capital controls that now make retrieving dollars nearly impossible.

“The main issue is about getting the dollars,” Daher stated, “And because the vast majority of goods purchased is through foreign currencies, dollars mostly, and when you don’t have a lot of dollars in Syria, this is one of the main issues.”

 

New alternatives

Due to this lack of access to dollars in Lebanon, this has forced Syrian businesses to try to find alternative outlets to get access to foreign currencies. Often this means going through opposition or Syrian Democratic Forces (SDF) controlled areas.

“This Lebanese crisis impacted the Syrian economy very strongly by completely blocking the way and leaving only two exits for getting the money,” Ata said. “One is the region of Idlib and the second is through SDF areas. But these amounts that can be traded there are much less than the amounts that were traded through Lebanon.”

As more routes from Lebanon were blocked, and the economy there continued to plummet, even businesses associated with the regime, desperate to get goods into the country, worked to get products from Turkey through opposition-controlled areas, despite it being illegal.

 

“Turkey has a huge smuggling market,” Daher explained, “That is something that people from the [Syrian] regime also penetrated.”

Despite some products being smuggled through Turkey into Syria, the amount being brought to regime-held areas is nowhere near the quantity that businesses were able to bring from Lebanon. It also poses a much greater risk given the volatility of northern Syria.

And with no end in sight to the economic crises, Lebanon is working toward their own economic recovery, but this will be a long process and, as long as Lebanon’s economy struggles, so will Syria’s.

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