Syria’s Financial Frustration : Inflation, Price Increases Forcing Policy-Makers to Consider Bank Balance

A high-level Syrian official was proudly telling an American visitor the other day that he had completed work on a major new book. Then, clearly embarrassed, he added that the manuscript had been stuck at the printers for several months because there was no paper to print it on.

Another official was asked about his government’s policy toward the Palestinian uprising in the Israeli-occupied West Bank and Gaza Strip. In frustration, the official blurted out: “Nobody is thinking about the West Bank. What everybody is thinking about is where they are going to get their bread, rice and margarine.”

Financial discontent has percolated into the middle levels of the Syrian bureaucracy, the latest in a long series of indicators that the economy is moving from bad to worse.

As the economic troubles mount, the problem has taken on a new political dimension: The proud leaders of Syria are being forced to formulate policy with one eye on their bank balance. Syrian envoys visit their rich neighbors in the Persian Gulf these days with peace plans in one hand and a beggar’s hat in the other.

“Syria’s economy (recently) has taken a more rapid plunge downward than in the previous several years,” one Western economic study said. For many Syrians, the frustration level was breached at the New Year, when the government announced 50% price increases on gasoline and 17 other staples, including eggs, chickens and milk.

The price of gasoline surged from 6.5 to 10 Syrian pounds a liter, which at $1.10 a gallon would seem reasonable to most Western drivers. But for Syrians, who have far lower incomes and are used to a subsidized economy, the price increases have proved drastic.

“A government worker makes between 1,000 and 1,500 pounds a month,” one official said, “which means he now makes enough to buy bread and corn oil. That is why people have taken two jobs, and I even know some with three.”

The latest price increases exacerbate inflation that Western estimates put at more than 110% in 1987. The Syrian government acknowledged earlier that the inflation rate in the first half of the year was 76%.

The inflation figures cover only commodities sold in government shops, so they do not reflect the free-market prices that most consumers must pay when rationed goods simply run out. The price of women’s clothing, which is not subsidized by the government, shot up 200% last year.

Reselling Oil

“Everything is harder to get and more expensive,” complained one Syrian official who spoke privately.

President Hafez Assad replaced his premier last year, choosing an agricultural official, Mahmoud Zubi, to run the new government in what many Syrians hoped would provide a respite for the economy.

In his first economic report, Zubi departed from past practice and did not salute the role of socialism in the economy. He called for greater emphasis on joint private-public sector projects in the coming year.

However, Western diplomats say that they have noted no changes in government policy under Zubi that could produce significant improvement in the economy.

Syria survives on gifts from abroad, principally oil from Iran, money from Saudi Arabia and remittances from Syrian nationals working abroad.

Iran gives Syria a million tons of oil each year and sells it another 5 million tons at preferential prices. Diplomats believe that the Syrians may resell the oil to raise hard currency.

There are indications that Syria’s other external sources of income may be in jeopardy.

The Saudis give Syria $540 million a year under a 1979 Arab agreement. But the assistance is due to expire this year and Saudi Arabia, which has borrowed money to finance its own budget, has shown no inclination to continue the aid.

And remittances from Syrians working abroad have fallen sharply: Five years ago, Syrians were sending between $1 billion and $2 billion home each year. Last year, the figure declined to between $100 million and $200 million.

One Western diplomat noted that the decrease reflected the general economic downturn in the Persian Gulf because of lower oil prices. But it also showed, the diplomat said, that Syrians abroad have lost faith in their own country and send home only the minimum necessary.

Another sign of Syrian economic weakness is the welter of regulations concerning foreign exchange. In the last year, a number of businessmen have received lengthy prison terms for changing money illegally.

The official rate for the U.S. dollar was raised to 11.25 Syrian pounds from 3.9, which represents a substantial devaluation of the Syrian currency, considering the dollar’s slide at the end of last year. In addition, a so-called encouraging rate allows tourists to change some dollars for 27 pounds each, while thriving black markets in Beirut and Jordan place the rate at 36 pounds for each dollar.

Lack of Raw Materials

Official Syrian coffers are widely reported to have exhausted all but $20 million in foreign exchange, though this rumor has persisted for so long that it is clear that the government has found some source of small amounts of foreign exchange.

But the desperation for hard currency is clearly present--taxis belonging to the Ministry of Tourism charge foreigners U.S. dollars for trips to the airport or out of town.

The foreign exchange shortage has forced many factories to shut down for lack of raw materials and spare parts. What spare currency there is appears to be used exclusively to import food, pharmaceuticals and parts for indispensable industries such as the petroleum business.

According to one diplomat, Syria came embarrassingly close to running out of wheat last year, borrowing 50,000 tons from Jordan and receiving 100,000 tons as a gift from Saudi Arabia. This year, Syria’s wheat needs are forecast at 1 million tons of imported grain.

Two areas of the economy that show promise are electricity production and oil.

Last year, electricity was so scarce that power was cut off for four hours a day in most localities. There are still power cuts but of shorter duration.

The oil industry continues to increase production, with one forecast predicting 230,000 barrels a day by sometime this month. The government is awarding new concessions for exploration in an effort to step up production.