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THE CAESAR ACT POTENTIAL IMPACTS on a SYRIAN ECONOMY in CRISIS Flash Report 26 June 2020

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THE CAESAR ACT POTENTIAL IMPACTS on a SYRIAN ECONOMY in CRISIS Flash Report 26 June 2020 THE CAESAR ACT POTENTIAL IMPACTS ON A SYRIAN ECONOMY IN CRISIS Flash Report 26 June 2020 MERCY CORPS The Caesar Act > 1 EXECUTIVE SUMMARY Syria is entering one of the most critical, and least predictable, phases since the beginning of the country’s brutal 10-year conflict. While the COVID-19 pandemic, and the 5 March ceasefire agreement in northwestern Syria contributed to an almost unprecedented pause in fighting in recent months, some observers suggest that a piece of US legislation known as the ‘Caesar Act’ could threaten the future stability of Syria’s economy, as well as potentially its government, in a way not seen since the early days of the conflict. And while there are already some indications of early impacts on the Syrian economy as a result of the Caesar Act, which came into force on 17 June, it has proven difficult so far to discern economic problems from before Caesar and after Caesar. The expected impacts from the act may in fact take some time to emerge. What is the Caesar Act? In December 2019, US President Donald Trump effectively forbids business activity engaging with signed into law the Caesar Syria Civilian key sectors of the Syrian economy (natural gas Protection Act, otherwise known as the ‘Caesar and petroleum production and construction). The Act’.1 Named after a defector who fled Syria in law would level sanctions against anyone who 2013, smuggling out tens of thousands of leaked provides significant support to, or engages in images detailing industrial-level abuse inside the transactions with, the Syria government, in theory Syrian government’s detention facilities, the law exempting both the country’s northwest and recommends “diplomatic and coercive economic northeast, which are currently under the control means...to compel the government of Bashar al- of rival authorities. However, the act is likely to Assad to halt its murderous attacks on the Syrian indirectly impact these territories in a number of people and to support a transition to a ways, and could reconfigure Syria’s economic government in Syria that respects the rule of law, relations with neighboring states (including human rights, and peaceful co-existence with its Lebanon, itself experiencing a severe economic neighbors.”2 Although the legislation itself is so crisis that is interconnected with Syria’s own). broad as to evade simple characterization, in On 17 June 2020, the first sanctions under the effect it threatens secondary sanctions against Caesar Act came into force, with the US any ‘foreign person’ knowingly engaging with the government imposing a total of 39 designations government of Syria or senior government under the act as well as Executive Order 13894. officials, paramilitary organizations fighting on the side of Damascus and individuals already The US Department of the Treasury imposed under US sanctions with regards to Syria; and sanctions on 24 entities and individuals who “are Cover image: ‘Damascus from above’ by Pixel whippersnapper, licensed under CC BY-NC 2.0 1 The Caesar Syria Civilian Protection Act was incorporated into a 2 US Congress, ‘H.R.31 - Caesar Syria Civilian Protection Act of 2019,’ larger package of legislation known as the National Defense Au- thorization Act (NDAA) for Fiscal Year 2020 (S1790), ostensibly the U.S. administration's 2020 defense budget. MERCY CORPS THE CAESAR ACT > 2 actively supporting the corrupt reconstruction allowing illicit economic activity to flourish, efforts of Syrian President Bashar al-Assad.” empowering (often interconnected) armed groups and business networks, and destroying key Additional sanctions announced by the US State agricultural, industrial and civilian infrastructure. Department on 17 June also targeted several The gradual disintegration of the national members of Bashar al-Assad’s inner circle and economy has also been accelerated by wartime leading security officials – many of whom were damage, and whole areas of the country falling already under US and/or EU sanctions. Asma al- outside the control of central government means Assad, wife of President al-Assad, was subjected that increasingly critical sources of income – such to US sanctions for the first time. as grain production in Al-Hasakeh, or oil and gas fields in Deir-ez-Zor – remain in the hands of rival authorities backed by foreign powers. Protectionist policies introduced by the Syrian government in an attempt to shore up the value of the pound also appear to have failed, and may account for some of the most recent depreciations in its value.4 Celebrated by some Syrians as the best available The US government has promised there are more route towards justice and accountability after sanctions to come. In a statement announcing the years of egregious rights abuses committed by the sanctions, US Secretary of State Mike Pompeo Syrian government throughout the country's warned: “We will continue this campaign in the uprising and ensuing conflict, others fear that the coming weeks and months to target individuals Caesar Act will either contribute to an all-out and businesses that support the Assad regime collapse of the Syrian economy, or will negatively and obstruct a peaceful, political resolution of the affect ordinary Syrians. 3 conflict.” And yet, the Syrian economy's vital signs were Pro-government media outlets and government already suffering immediately before the Caesar officials in Damascus routinely blame Syria’s Act came into force. economic woes on previous sanctions which have On 8 June, the Syrian pound fell to its lowest-ever been imposed by the US and other western value – over 3,000 SYP per USD, a fall of nearly countries since 2011. This is, of course, a gross 50% compared with just days earlier – further simplification of realities on the ground. The ratcheting up food prices, inflation and poverty Syrian government has undoubtedly played a rates. Shop closures, strikes, street protests and significant role in Syria’s economic collapse, by growing criticism online all point to growing 3 US Department of State, ‘Syria Caesar Act Designations.’ June 2020 4 For more information see: Humanitarian Access Team, ‘Govern- ment of Syria responses to the financial crisis.’ May 2020 MERCY CORPS THE CAESAR ACT > 3 disquiet about deteriorating conditions across rise, basic items (including medicine) disappear the country. Meanwhile, competing authorities in from the shelves, and families inch closer to food control of northwest and northeast Syria are insecurity and absolute poverty. already attempting to isolate themselves from a Concerns within government-held areas appear collapsing Syrian pound, further entrenching firmly fixed on the now: nobody seems to know territorial divides – this time, along economic what comes next. It is therefore vital to examine lines – in the process. Ordinary Syrians are the state of Syria’s economy and to begin trying to bracing for what could be the toughest period yet discern the current, and coming, impacts of the for government-held Syria as prices continue to Caesar Act. Current Economic Trends and Potential Impacts 1. Syrian pound collapses to record lows The Syrian economy has been rocked by There are already suggestions that recent record unprecedented falls in the value of the Syrian falls in the value of the pound were tied to the pound, which dropped by nearly 50% (to around looming implementation of the Caesar Act before 3,100 SYP per USD) compared with 4 June, the 17 June – something that James Jeffrey, the US previous week, when its value remained around administration’s lead Syria diplomat, claimed 2,000 SYP per USD. This followed another fall from during a virtual town hall event with Syrian around 1,000 SYP per USD at the beginning of the activists recently, stating that the Caesar Act had year. already had a hand in devaluing the pound.5 The pound crisis is not new. Poorly managed monetary policy over the past decade has left Syria’s Central Bank almost completely empty of foreign cash reserves. An initial, not insignificant, decline in the pound began late last year – around the time Congress passed the sanctions – dropping from 670 SYP to more than 1,200 SYP per By 15 June, the Syrian pound gained back some USD. Lebanon’s concurrent economic crisis was value, and is now hovering under the previously also gathering speed at the time, and the COVID- unprecedented level of 3,000 SYP per USD. 19 pandemic has taken its toll on the Syrian However, ongoing economic instability could economy since. However, it was a widely easily change that. publicized spat between Assad’s presidential palace and Syrian tycoon (and cousin to Assad) 5 Asharq al-Awsat, ‘US official: Our sanctions contributed to the de- terioration of the lira,’ 9 June 2020, MERCY CORPS THE CAESAR ACT > 4 Rami Makhlouf, which broke out in public in May, withdrawal limits and the Lebanese pound also that sent the Syrian pound further into a tailspin. depreciated, those deposits lost value themselves. 7,8 As the Lebanese crisis continues, Despite some minor improvements to the value of Lebanon may seek to distance itself from a Syrian the pound earlier in the year, it appears that economic collapse to protect its own access to protectionist policies by the central government – dollars, and attract International Monetary Fund including restrictions on import licenses and support. crackdowns on the black market – have failed to stave off an accelerating currency collapse. Imad Khamis, Syrian prime minister at the time, told the People’s Assembly on 9 June that between 2017 and 2020, the government had expended some $20 billion in attempts to stabilize the pound against the dollar, adding that Syria is looking for a loan from Russia as a result.6 Although Khamis did not elaborate on what basis this amount was calculated, some observers have taken the stated With regional ties becoming more unstable, and numbers as explanation for the more rapid within Syria, whole areas of the country falling out depreciation in the past week.
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