GOVERNMENT OF SYRIA RESPONSES TO THE FINANCIAL CRISIS

THEMATIC REPORT 7 MAY 2020 INTRODUCTION

The Syrian economy has suffered significantly since the onset of conflict in 2011. Gross domestic product (GDP) in 2020 sits at just one third of its pre-conflict level in 2010, while both internal and external economic shocks have further undermined domestic trade, financial markets and the export market. Internally, the country’s two main sectors, agriculture and oil, have been hugely affected by the protracted conflict and its impact on extraction, production and national and international trade. The official oil production of the government dropped from 385,000 to 24,000 barrels per day between 2010 and 2019. Tourism sector revenues dropped from $8.21 billion to $14 million between 2010 and 2017, while the agricultural sector is largely unproductive, with damaged irrigation systems, trade routes and a lack of 1,2,3 access to primary production inputs.

Externally, economic sanctions imposed on the country by the EU and USA have decimated the export market, while the neighboring financial crisis in Lebanon has all but destroyed financial systems dependent on the Lebanese banking and financial sectors. More recently, the global outbreak of COVID-19 has significantly decreased prospects for economic growth as the secondary impact of preventative

4,5 measures of lockdown, curfews and movement restrictions take hold.

One of the major effects of Syria’s failing economy has been the devaluation of the Syrian pound (SYP). From the beginning of the conflict in 2011 to the end of March 2020, the exchange rate fell from 47 to 1,360 SYP per USD, representing a 96.5% decline in value. In the past week (1–7 May 2020), the SYP has further devalued to 1,410 SYP per USD on the black market, demonstrating again its instability.

For communities within Syria, the declining value of the pound has been compounded by increasing levels of inflation of basic food, sanitation and medical items, as well as increased resource scarcity. HAT has recorded price increases across Government of Syria-held areas between December 2019 and March 2020 of 200–300% for basic food items such as flour, vegetables, and dairy products. Internal agricultural production has also been negatively affected, through difficulties in importing basic machinery and supplies. Most recently, price increases of basic and organic fertilizers imposed by the Government of Syria in March 2020 have meant that many agricultural workers and farmers will be unable to cultivate their lands. This places further concerns of resource scarcity and food insecurity on an economy already struggling with high levels of inflation. 6,7

(1) Chatham House, ‘The Syrian Pound Signals Economic Deterioration’, September 2019 (2) According to the Government of Syria statistics, oil production contribution to GDP in Syria was 9.5 percent in 2010. (3) Humanitarian Access Team, ‘Fuel in Government of Syria-held areas, March 2020. (4) GDP per capita growth (annual %) World Bank Data , April 2020 (5) Middle East Monitor, With the Syrian economy on the verge of collapse, recovery seems like mission impossible, February 2020 (6) Forexeasy, How to Calculate Currency Depreciation, May 2013 (7) Enab Baladi, ‘Daraa farmers face a "disastrous season" after fertilizers' prices hike’, March 2020 Consequently, the failing economic situation and devaluation of the Syrian pound has raised some serious concerns for the humanitarian fallout within Government of Syria-held areas. Not only are there concerns over long-term livelihoods and nutrition, but also the ability for humanitarian actors and partners to operate within an environment of excessive inflation and resource scarcity. As it stands, Syria is not in a situation where it is facing hyperinflation, aided as it is by its political allies, Russia and Iran. However, given the economy’s weakness and susceptibility to external market shocks, the collapse of the Syrian economy is not entirely impossible, and planning for a humanitarian response will need to be considered.

DEVALUATION OF THE SYRIAN POUND 2019-CURRENT

In 2019, following several internal and external shocks, the Syrian pound depreciated rapidly falling from 500 to 911 SYP per USD from January to December 2019. This was largely triggered by the financial crisis in neighboring Lebanon (by no means the sole cause), which all but froze the transfer of an estimated $30 billion worth of financial assets from Lebanon to Syria.8,9

While the currency continued to fall throughout 2019, the Central Bank of Syria (CBS) maintained its official exchange rate at a level significantly higher than its worth on the open market – in January 2020, the Syrian pound was still pinned at 434 SYP per USD, despite the fact that the unofficial ‘black market’ rate, traded on the ground, continued to plummet reaching 1040 SYP per USD. The devaluation caused an inevitable gap between the official rate and that traded on the open market, leading the Government of Syria (GoS) to soften its approach. Consequently, by mid-January 2020, the official exchange rate of the GoS was set at a lower value of 700 SYP per USD for specific financial transactions, and has gradually been extended to include specific imports and exports as well as internal foreign currency exchange and financial remittances. Despite this apparent weakening from the CBS, the official rate was still much lower than that on the open market which fluctuated between 1045–1075 SYP per USD in late January. 10

(8) Syria Report, 'Economy, Business and Finance - Syria and the Middle East', [Account needed], Updated May 2020

(9) Syrian Observer, ‘Syrian Assets in Lebanon in Danger’, October 2019

(10) Syrian report, Central Bank Devalues Exchange Rate for Remittances, [Account needed] January 2020 Despite the measures implemented by the GoS in an attempt to keep the Syrian pound from crashing, it has not been able to save its currency from further devaluation. As stated previously by HAT, while there was a pause in devaluation of the pound in late January, with the rate stabilising at 1045–1075 SYP per USD, this appeared to be a short-term event. In March 2020, two major external events occurred which further reduced Syrian prospects for improving the pound’s worth. Firstly, Lebanon defaulted on its Euro loan repayments, meaning Syria could no longer rely on the flow of USD from Lebanon. Secondly, the global spread of COVID-19 and preventative measures by the GoS have caused significant damage to domestic trade and restricted movement for international trade. The Syrian pound has consequently dropped 26.5% in black market value over two weeks (12–27 March), from 1075 to 1360 SYP per USD, a record low. 11

STRUCTURAL ISSUES IN THE ECONOMY

1. FINANCIAL DEPENDENCE ON LEBANON

The Syrian economy, and more specifically its financial structures, are largely dependent on foreign financial markets, namely Lebanon. Lebanon's financial and banking sectors have linked Syrian enterprise to external economies since the 1950s, a relationship which was strengthened following EU and US sanctions which began in 2011. It was reported that upon the onset of the conflict, more than $20 billion was transferred from Syria to Lebanon, with some estimates stating that as much as 40% of Lebanon’s total deposits are held by Syrian nationals.

Lebanon not only worked as a safe haven in which to store savings for Syrians, but also a line of credit to Syrian traders and importers for their domestic markets. In addition, Syrian nationals were able to engage in external market activities, such as purchasing foreign property, through Lebanese financial systems thereby navigating sanctions in their own country. Lebanon has worked as one of the few financial markets of currency transfers into Syria as sanctions from the EU and USA have limited other avenues, significantly drying up Syria’s foreign reserves.12,13

(11) Humanitarian Access Team, Weekly Report 01/15/2020 - 01/21/2020, January 2020

(12) Arab reform, ‘Syria’s Growing Economic Woes: Lebanon’s Crisis, the Caesar Act and Now the Coronavirus’ January 2020

(13) Middle East Eye, Syria's economy goes from very bad to worse as Lebanon's crisis hits, January 2020 Consequently, the financial crisis in Lebanon played a key role in accelerating the devaluation of the Syrian pound. The eruption of the civil movement against government corruption and the gross mismanagement of the economy led to financial institutions closing temporarily in 2019. Strict capital controls were imposed in November, and following these financial institutions placed limits on US dollar withdrawal in order to prevent a rush at banks and the depletion of financial reserves. The restriction on foreign currency withdrawals has continued and, following implementation of the Lebanese government’s COVID-19 precautionary measures, banks have ceased providing US dollars completely. As a result, Syrian citizens, including businessmen and traders, have reportedly lost access to an estimated $45 billion in the Lebanese 14,15,16,17 banking system, further starving the Syrian economy of much needed foreign currency.

Further compounding the difficulties faced by the Syrian economy is the inability of Syrian citizens living and working in Lebanon to send remittances back to Syria through their financial systems. Even prior to the conflict the ILO estimated that over 300,000 low skilled Syrian workers were employed in Lebanon on a seasonal basis, primarily in agriculture and construction. Now with an estimated 1.5 million Syrians living in Lebanon, financial remittances are a major income source for families and friends living in GoS-controlled areas, with some estimates suggesting they accounted for up to 19% of national revenues, or $274.4 million per year. 18,19

The Lebanese financial crisis and currency devaluation continues, while for the first time in the country’s history, in March, it defaulted on Eurobond payments – this will no doubt have a knock-on effect of increasing volatility on Syria’s financial system.

(14) Middle East Eye, Coronavirus: Lebanon banks halt dollar withdrawals after pandemic closes airport, March 2020

(15) On 17 October 2020, hundreds of thousands of Lebanese citizens took the streets to protest the Government’s economic and financial policies. The protest which was fueled by decades of corruption, increased taxation, debt accumulation, and an incompetent administration was sparked by government’s announcement that citizens would be taxed $6 per month for using the Whatsapp messaging service.

(16) Bloomberg, ‘Lebanon's Banks Set Limits They Won't Call Capital Controls’, November 2019 (17) Aaswat.com, ‘Damascus Estimates Syrian Deposits in Lebanese Banks Worth $45 Billion’ January 2020

(18) Syria Direct, ‘ How is the Lebanese crisis affecting Syria?’ December 2020

(19) Middle East Monitor, ‘With the Syrian economy on the verge of collapse, recovery seems like mission impossible’ February 2020 2. MONETARY POLICY

Since the beginning of the conflict in 2011, the Central Bank of Syria (CBS) has attempted a number of different strategies to curtail the devaluation of the Syrian pound. Between March and August 2011, the CBS spent $2 billion in an attempt to shore up its currency – despite this, by January 2012, the Syrian pound had lost 40% of its pre-conflict value. Numerous other policy measures were implemented including the CBS issuing a law in 2013 constraining foreign currency trade, and mandating official exchange companies to deliver all inbound cash orders solely in Syrian pounds. This policy only fueled the expansion of black- market cash transfer systems which allowed foreign transactions to be delivered in foreign exchange currencies at a rate much higher than that officially imposed by the CBS. Consequently, not only had the CBS failed to curb the devaluation of the pound, but it also lost a significant amount of its foreign cash reserves which it depended on for import financing. Policy measures also limited trade to be exclusively conducted in Syrian pounds, and clamped down on black market dealers. Some of the more questionable policies implemented by the CBS included the decision to sell its reserves of hard currencies to foreign exchange companies in 2015, estimated to have cost approximately $1.2 billion.20

In 2016 the CBS abandoned its interventionist monetary policy. Its attempts to keep the Syrian pound from devaluing had largely failed, while significantly depleting the CBS’s financial and foreign currency reserves. It was estimated that prior to the conflict, the GoS held between $16–18 billion in foreign reserves, while in 2020 this is estimated to be as low as $700 million. This has limited its ability to implement any form of monetary response to aid the devaluing Syrian pound. Furthermore, in 2017 the CBS introduced new notes into the market system, indicating that these would simply be replacing some of the old bank notes which would be removed from circulation and were not part of government monetary policy. However, there is little evidence of this happening, and consequently, the cash injection has led to a further devaluing of the pound.

3. SANCTIONS

International sanctions placed on Syria by the US and EU have also contributed to the deterioration of the Syrian economy. Sanctions included trade and financial restrictions, making it very difficult to import agricultural, industrial, and energy-related material and equipment necessary for production and infrastructural maintenance. Consequently, they have severely impacted the manufacturing and agricultural sectors and aided the collapse of local production capacity, leading to a decline in exports. As these sectors

(20) It has been suggested that this was implemented to assist corrupt individuals aligned with the GoS and CBS. also sustained significant damage throughout the conflict, sanctions have prevented many national efforts for reconstruction, meaning increased dependence on import substitution in order to fill the gap in domestic markets caused by the dip in output. As a result, Syria’s trade deficit has widened from $4 million in 2016 to $5.6 billion in 2018. Once again, capital reserves are required to pay for imports, causing further depletion.21

More recently, sanctions on the Syrian economy were tightened. In October 2018 the US Department of the Treasury issued a statement regarding petroleum shipments to Syria. In an effort to oust Syrian president Bashar al-Assad, the new sanctions were specifically aligned to dissuade any involvement in reconstruction efforts within Syria and to counter any possible efforts by Syria’s allies (Iran and Russia specifically) who may attempt to invest or take control of Syria’s oil or gas reserves. In December 2019, Donald Trump, president of the US, agreed to new sanctions which included the ‘Caesar Syria Civilian Protection Act', designed to inhibit entities involved in construction, engineering, energy and air transport, as well as those that help finance the GoS. Furthermore, in February 2020, the EU announced it would be expanding its sanctions on the GoS by increasing the number of business people and enterprise on its sanctions list. Critics of the imposition of the sanctions have highlighted that this may lead to allies of the GoS stepping in to ease the pressure, further increasing their influence over the country’s polity, and will also have significant detrimental effects on the most vulnerable members of Syria’s population. 23,24,25

4. COVID-19

The primary impact of COVID-19 on the health of the Syrian population is of serious concern, however the secondary impacts to the economy, politics and society are also proving to be significant. The pandemic is negatively affecting local economies in the Middle East as internal and external demand decreases, trade and production are disrupted and global consumer confidence is reduced. It is not just the Syrian pound that has devalued since the onset of COVID-19 restrictions in March 2020. Turkey and Lebanon have also displayed a weakening currency, with the Turkish Lira falling from 6.04 to 7.23 TKY per USD in the weeks 4 March to May 6, and the Lebanese pound falling from 2,000 to 3,950 LBP per USD (black market) or 1,500 to 2,000 LBP per USD (official) over a similar timeframe. Instability within stronger economies threatens to destabilise the region, particularly in countries like Syria which are already struggling with a failing economy. 26,27

(21) The Syrian Report, ‘Syria's Trade Deficit Widens’, [Account required] (22) Department of the Treasury,’OFAC Advisory to the Maritime Petroleum Shipping Community Issued: November 20, 2018 Subject: Sanctions Risks Related to Shipp,’ November 2018 (23) Syria accountability ‘The Caesar Act: Impacts and Implementation’, February 2020 (24) Al Monitor, ‘As sanctions loom, Syria looks to retrieve funds from abroad’ February 2019 (25) ECFR, ‘The economic war on Syria: Why Europe risks losing’ February 2019 (26) IIMF, ‘COVID-19 Pandemic and the Middle East and Central Asia: Region Facing Dual Shock,’ March 2020

(27) While 1500 LBP per USD is still the official exchange rate, there has been a ceiling of 2000 LBP per USD set by the Lebanese Central Bank. Most concerning about the secondary impacts of COVID-19 is the effect on informal workers and non- essential services, a significant portion of the Syrian economy. If Syria follows similar trends witnessed in neighboring Lebanon or Jordan, including the complete shut-down of all but vital business (pharmacies, grocery stores) as well as the imposition of curfews and self-isolation, the loss of livelihood and increased prices will lead to significantly reduced purchasing power, and consequently a reduction in standards of living. The GoS have implemented some basic measures (closure of schools and universities, restriction of inter-governorate movement and trade and closure of non-essential shops), and it remains to be seen whether they tighten restrictions in light of the costs.

As neighboring countries continue to react with protectionist economic policies, access to imported goods will become scarcer, with further inflationary pressures. On 27 March, Russia, the world’s largest exporter of wheat, announced it was setting up a quota on grain exports in order to protect its domestic supply as COVID-19 cases increased in-country. This is a major concern for countries such as Syria who are major importers of Russia’s wheat. If food security is compromised, the GoS would have to resort to spending more

28 of its foreign currency reserves to purchase wheat at higher prices from other sources.

The collapse in the global oil price, as a result of Russia’s refusal to reduce production in light of reduced demand following international COVID-19 mitigation strategies (and Saudi Arabia’s subsequent triggering of a price war), has also been a major economic shock to the region, as neighboring countries including Iraq suffer economic contractions. Crude oil prices have dropped more than 60% in 2020, far below what is needed for regional petro-based economies such as Saudi Arabia and Iraq to balance their budgets. This may add a further layer of uncertainty to Syrian financial markets dependent on regional relationships, as 29,30 countries may hike tariffs to avoid significant deficits and limit their own currency devaluations.

(28) World Grain, ‘Russia mulling grain export quota’, March 2020 (29) CNN,’Oil collapses by another 24% to $20. It hasn't been this low since 2002’, March 2020 (30) Bloomberg, ‘Petrostates Hammered by Oil Price Plunge and Pandemic’s Spread’, March 2020 STRUCTURAL ISSUES IN THE ECONOMY

Following the depreciation of the Syrian pound the Government of Syria (GoS) began enacting a series of mitigation measures to help cope with the new economic hardship.

MARKET CONTROL MEASURES The depreciation of the Syrian pound, coupled with price manipulation by traders has caused prices for many goods and services to increase across GoS-held territories. This predictably led to a decrease in the relative value of public and private sector salaries, effectively reducing Syrian citizens’ purchasing power and lowering their standard of living. The GoS began enacting measures to mitigate the effects of the price increase. The measures can be divided into two categories; price monitoring and control, and limiting the purchasing power gap.

1. PRICE MONITORING AND CONTROL

In order to control prices, the GoS issued official price lists with the intent of enforcing an officially mandated ‘market ceiling’, thereby criminalizing any price increase which exceeded this. An official price list for staple food items was introduced in December 2019 following a depreciation of the Syrian pound from 632 SYP to 950 SYP per USD since October the same year. This was followed by a second list covering other essential items including canned tuna and sardines. After the currency depreciated further to 1,030 SYP per USD (having exceeded 1,000 SYP per USD in January 2020), another price list was issued In February 2020, which included a larger number of goods. 31,32

The ministry then began issuing product-specific lists. On February 23 and March 17, 2020, the ministry introduced an official price list for poultry-related products including chickens, eggs, and shawarma.

In addition to setting prices, the ministry announced in November 2020, it would send market patrols across GoS-held areas to more rigorously enforce price controls. The patrols targeted shop owners and traders whom the GoS saw as unjustifiably increasing prices, failing to provide receipts to customers, not displaying their prices, providing products contrary to the advertised amount and contents, or for selling expired products. The patrols’ punishments included fines of 150,000 to 600,000 SYP, imprisonment for a minimum of six months and the closing down of shops. The state-run SANA news agency reported a total of 450 fines in the third week of November 2019 and 2,062 fines and 803 shop closures in the first week of December 2019. Some governorates provided assistance in price monitoring activities; the governor for Damascus, Adel Al ‘Albi, issued a directive in December 2019 for the Executive Office to form a nine-person team to accompany the ministry’s patrols to monitor prices in the city markets. However, other governors were at odds with the ministry after national and governorate interests clashed. In January 2020, the ministry’s patrols without warning reportedly closed more than 40 shops not displaying their prices in Homs city. This prompted the governor for Homs, Talal Barazi, to instruct the ministry’s patrols to give shop owners due notice before taking punitive action. Local Homs sources report that ministry patrols continue to close shops without notice, defying the governor struggling to maintain economic activity in the city.

2. LIMITING THE PURCHASING POWER GAP

On November 21, 2019, following the devaluation of the Syrian pound to 750 SYP per USD (a record low at the time), Syrian president Bashar al-Assad issued legislative decrees 23/2019 and 24/2019. Decree 23 enacted an increase in the monthly salary of active GoS civilian and military personnel by 20,000 SYP while decree 24 increased the pension of retired GoS personnel by 16,000 SYP per month. Additionally, decree 23 also increased the minimum wage for employees in the private sector to 47,675 SYP. However, according to local sources the real salary increase for current GoS employees did not actually exceed 12,000 SYP, stating that the remainder was deducted for tax and insurance by the GoS. The implementation of salary increases by the GoS has been a mechanism which has been used extensively in the past, usually following periods of currency depreciation. While these wage increases have been implemented, some have suggested that the increased salaries have simply come from the GoS printing more money, which in turn further devalues the Syrian pound, limiting any real increase in income.33

The GoS also sought to provide more affordable food items for Syrian citizens amidst the price increases. The Syria Trading Establishment (STE) introduced a new affordable food basket costing 10,000 SYP in early December 2020 for citizens in GoS-held areas. Four days after the introduction of the food basket, the STE reported 15,000 baskets were sold in its distribution centers. Following this, the STE introduced another food basket costing 6,000 SYP In order to keep up with the increased demand, the GoS provided the STE with an advanced payment of 10 billion SYP to provide subsidized staple foods. The GoS soon followed with another advance payment of 20 million SYP on 3 February 2020. 35,36,37

(31) Rice, sugar, oil, ghee, tea, baby milk, and sugar. (32) Chinese and Indian rice, Potuguese-Spanish-American rice, vegetable oil, flour (33) Previously, laws addressing minimum wage never explicitly stated an amount In another attempt to support poorer communities with the intent to better manage the distribution of subsidized food, the STE began distributing sugar, rice, and tea using a smart card system in February 2020 across its 1,250 distribution centers and 77 mobile distribution vehicles in GoS-held areas. The smart card enables families to receive 4kg of rice (400 SYP per kg) 4kg of sugar (350 SYP per kg) and 1kg of tea (900 SYP per 200g) per month at subsidized prices. However, seeing that the demand still exceeded supply, and heeding to the request of more items and larger quantities, the STE introduced sunflower oil and increased the rations of sugar and tea for families of different sizes as shown below.

Family Size Rations Family of 2 1 liter of sunower oil Family of 3-4 2 liters of sunower oil Family of 5-6 3 liters of sunower oil - 5 kg of sugar -1,200 g of tea Family of 7+ 4 liters of sunower oil - 6 kg of sugar - 1,400 g of tea

(35) Legislative Decree No. 6 of January 18, 2017 merged three institutions (Al Istihlakiya - Al Khazen w Al Taswik - Sundus) into one public institution, the ‘Syria Trading Establishment’ (STE) which enjoys financial and administrative independence and is linked to Ministry of Internal Trade and Consumer Protection. The STE purchases and sells goods in addition to working as an agent and investing in commodities, textiles, and agricultural products, both animal and plant.

(36) 5 kg of sugar, 3 kg of rice, 2 liters of oil, ½ kg of tea, 2 cans of ghee, 2 kg of lentils, 1 kg of chickpeas, 3 kg of groats, ½ kg tomato paste, and 1 kg of macaroni (37) 3 kg of sugar, 3 kg of rice, 1 liter of oil, 500 g of tea, 375 g of tomato paste, 500 g of noodles, 700 g of macaroni, and 1 kg of ghee CURRENCY CONTROL MEASURES

As highlighted above, the closure of the Lebanese banking system led to a major loss of essential foreign currency – needed for import trading within GoS-held areas – entering Syria. This affected both consumer, trade, and industrial imports, making machinery, agricultural raw materials and other necessities for production scarce. Consequently, the GoS began enacting measures to mitigate the effects of the lack of availability of US dollars, including financial centralization, increased capital controls, and the sale of debt.

1. FINANCIAL CENTRALIZATION

Financial centralization measures implemented by the GoS prohibited the possession of foreign currencies, required all exchange operations through the Central Bank of Syria (CBS), and initiated a process to centralize financial transactions through the CBS – seemingly implemented in an attempt to funnel all US dollars existing within or entering the Syrian economy into GoS coffers.

President Assad issued Presidential decrees 3/2020 and 4/2020 in January 2020, mandating punishments for dealings in foreign currency or circulating ‘false information’ (which encompassed any rhetoric on currency devaluation or speech involving the US dollar). Decree 3/2020 amended the prior legislative decree 54/2013 by increasing the punishment of dealing with foreign currencies to at least seven years of hard labor and a fine double the amount of money paid or received in the foreign currency. Decree 4/2020 also amended the 70-year-old decree 148/1949 by increasing the punishment of circulating false information – widely known to refer to the Syrian pound black-market exchange rate. The amendment allowed temporary arrest and fines ranging from 1 to 5 million SYP. Following the issuance of the decrees, the GoS began arresting and confiscating the foreign currency of business owners (for acting as an unofficial exchange premises), along with people carrying US dollars across its territories (for conducting financial transactions in foreign currencies). 38,39

The fallout from decree 3/2020, was that private importers and exporters using US dollars to purchase raw materials and other materials essential for production and service provision would no longer be able to do so. In order to allay their fears, Syrian prime minister Imad Khamis met with the Syrian Chamber of Industry, stating “the State is the first and last sponsor of the business and economic sector in Syria,” and that they are working on filling any gaps within their current capacity. The meeting was followed up with a series of measures to incentivize importers and exporters to continue trade operations, announced in early February

2020: The CBS announced that it would be exempting raw material exports from all non-tariff fees and decreasing tariff fees to one per cent.

The Ministry of Economy and External Trade exempted importers from the requirement of having 25% of the value of imports held in Syrian pounds, reducing the rate to 15% for 10 basic goods.

The CBS announced that it will be financing raw materials and certain food items at an exchange rate of 700 SYP per USD, and staple food items for the STE at 434 SYP per USD.40,41

The CBS also committed to working with the Syrian Chamber of Commerce on issuing special ID cards for importers and exporters which allow them to carry foreign currency. The declaration of commitment came after the CBS declared that Decrees 3/2020 and 4/2020 do not apply to importers and exporters.

In January 2020, the CBS declared that it will be purchasing US dollars from Syrian citizens at a rate of 700 SYP per USD as opposed to the official 434 SYP per USD exchange rate. The move is likely to have been made to incentivize Syrian citizens who possess foreign currency to conduct their exchange operations within the CBS to increase reserves of hard foreign currency. The CBS then moved to close 14 official exchange companies, thereby limiting foreign exchange operations to its own branches.

Additionally, in order to encourage the transfer of remittances from Syrian expats to their relatives in Syria, the CBS gave a special exchange rate for official international monetary transfer agencies (IMTAs) in 42 various foreign currencies on 5 February 2020. The CBS would then issue new special exchange rates on 9, 10 and 11 March consecutively.

Khamis also issued decision 5/2020 stating that all financial transactions relating to the purchase or sale of property and vehicles should be conducted through Syrian bank accounts. The decision faced complications in some banks, such as the Syrian Trading Bank, which was unable to implement the decision based on online banking constraints and a lack of preparation time to implement changes. On 15 February 2020 the Ministry of Transportation stated the implementation of decision 5/2020.

(38) Decree 54/2013 punishes people conducting financial transactions in foreign currency worth 100,000 SYP as being six months to three years of imprisonment, and fine double the amount of the transaction. Moreover, the punishment increases to three to seven ten years of hard labor and a fine double the amount of the transaction if an individual conducts a transaction worth one million SYP or more.

(39) Decree 178/1949 punishes people for circulating false information through imprisoning them from six months to three years and fining them 250 SYP to 1,000 SYP. 2. CAPITAL CONTROL

In order to prevent capital flight of much-needed foreign currency, the CBS has taken some capital control measures. It announced a $5,000 daily withdrawal limit for CBS clients – if the client is receiving an international monetary transfer (hawala), then the bank is not required to provide the amount if they do not have it in hard currency, but can transfer it to another bank with sufficient liquidity. Additionally, CBS’s Combating Money Laundering and Terrorism Financing Commission (CMLTF) issued a decision in March 2020 placing limits on the amount of money which both Syrians and non-Syrians can carry into and outside of Syria. The limit for people entering is reportedly $100,000 while no limit is imposed on the Syrian pound. People exiting can carry $10,000 or its equivalent in foreign currency if they’re Syrian, and $5,000 if they’re non-Syrian.

3. SALE OF DEBT

In order to stimulate the economy, the GoS made the decision to sell debt to fund its national budget. In January 2020, the Ministry of Finance announced two lots of sales of two-year treasury bonds aimed at attracting 300 billion SYP, at an annual interest rate of 7%, with staggered sales set at 3 February and 3 August 2020. The Ministry of Finance declared the purchase of the bonds by seven private banks following the first auction in February.

(40) Timber, vaccines, veterinary preparations, infant formula, rice, Yerba Mate, corn fodder, fertilizers and agricultural pesticides, agricultural production material, fodder and essential oil supplements, yeast, medical supplies and equipment, barley fodder, yarns, garment accessories except for fabrics, equipment, iron sheets and coils, raw vegetable oils and ghee, dairy cows, hatching eggs and chicks for hatching hen mothers, hatching eggs and chicks for hatching hen grandmothers, canned sardines, canned tuna, laboratory reagents and their solutions, iron sheets and coils, raw vegetable oils and ghee, hatching eggs and chicks for broiler grandmothers, hatching eggs and chicks for broiler chicks and whites, canned sardines, tuna and inks, refined white sugar, raw sugar, human medicine and raw materials, spare parts for production or transportation equipment, solar energy tubes and accessories, soybean meal, sesame, agricultural seeds, baby nutrition food (cerelac), tea, soybean seeds, solvents and thinner (Organic Compound Thinner), veterinary medicines, starch, corn, molasses, roasted coffee, wheat, potatoes, bags and shoe making materials except for leather and plastic granules.

(41) Rice, sugar, tea, canned tuna, canned sardines, infant formula, human medicine and raw materials, agricultural seeds,Yerba Mate, eggs for hatching and chicks for broodstock, hatching eggs and chicks, raw vegetable oils, and ghee.

(42) The USD exchange rate is 704 SYP per USD. OPERATIONAL IMPACT

Currency control and financial centralization policies implemented by the Government of Syria (GoS) have adversely affected humanitarian programming, presenting challenges to many local, regional, and international humanitarian organizations of all types operating within its territories. The HAT, through conducting questionnaires and interviews, was able to identify the challenges that these organizations face in light of the new GoS measures. Three main issues were identified as the transferring, exchanging and storage of foreign currency.

Many humanitarian organizations rely on IMTAs to transfer money. After the GoS measures were announced and strict implementation followed, many agencies had to either suspend or limit their operations for security reasons, causing delayed and costly transfers. Those which remained open formed an oligopoly as a result of decreased competition, allowing them to set an exchange rate independent of the black market rate and further increasing transfer costs.

Organizations have also found it difficult to exchange money after receiving a transfer in foreign currency due to GoS crackdowns on unofficial exchange offices across its territories. While the CBS did provide a 700 SYP per USD exchange rate as an alternative, many organizations avoided using the new rate, preferring to search for other alternatives instead.

Complications in financial transfers and exchange operations have affected spending and programs of humanitarian organizations. The increased difficulty of receiving transferred money in foreign currency has forced some to receive transfers in Syrian pounds, which effectively reduces the program’s budget due to its constant fluctuation. This problem has also spilled over to employee salaries, which are no longer paid in US dollars but in Syrian pounds at the black-market rate, making salaries unreliable due to fluctuating exchange rates.

In an effort to mitigate damages, organizations have attempted to store foreign currency, however this has also become problematic. Those who stored currency physically in cash inside Syria had to reconsider their storage location for fear that GoS security officers might discover the money (in raids) and consequently legally prosecute them under Decree 3/2020.

While challenges concerning financial transfers, the exchanging and storing of foreign currency have been particularly difficult for humanitarian organizations, the impact on humanitarian programming has seemingly been minimal – transfer delays have caused postponement of some projects, while budgeting and spending on programming has in some cases been forced to become more economical. MITIGATION MEASURES

Local, national and international humanitarian organizations in Syria have taken several measures in an attempt to cope with financial measures issued by the Government of Syria (GoS). These methods included accessing foreign currency in a neighboring country, and either exchanging it for Syrian pounds or retaining it as was, and transporting it into Syria, and/or transfering the money through an IMTA and receiving it in Syrian pounds. However, some organizations still transfer money in foreign currency into Syria knowing the additional risks and cost of doing so. Additionally, some organizations have resorted to either entering or transfering funds that amount to no more than $50,000 into Syria or entering or transfering funds of the exact cost of a project or program – it is easier to enter with less, while keeping tranfers equal to costs makes it easier to avoid investigation – which mitigates risk and adheres to the CMLTF’s new measures.

In terms of exchanging money, organizations have begun exchanging currency externally, knowing funds sent in foreign currency would lose value if exchanged at the official 700 SYP per USD rate and would be risky if exchanged at an unofficial exchange shop.

In terms of storing foreign currency, many organizations who stored cash at their offices have now resorted to either storing at home, in a bank account outside of Syria, or in the homes of its employees and/or managers for fear that a GoS security raid might lead to the confiscation of the money, the arrest of employees, and possibly the organization’s loss of its official status.

RECOMMENDATIONS

1. Transfer small amounts of money

Ensure the maximum amount of funds transfered does not exceed the $100,000 limit set by the CMLTF as a mitigation measure. It is safer if the money is transferred to more than one individual while including a cap for the maximum amount of money that can be transferred per individual, thereby reducing individual risk. 2. Prepare a safe office/personal space for receiving a transfer

Regardless of which side of the transfer you are on, ensure that the person designated to receive the funds has a safe space where they can receive the money. This is very important considering the absence of IMTA designated transfer pick-up locations in certain areas following raids conducted by security agencies across GoS-held territories.

3. Exchange foreign-currency funds outside Syria, if possible or convenient

With Decree 3/2020 in place and the GoS security agencies on the lookout for unofficial exchange offices inside its territories, it is safer to exchange your foreign currency for Syrian pounds outside Syria, where there is no risk of arrest for exchanging at black-market exchange rates or for possessing foreign currency.

4. Prepare a safe office/personal space for storing foreign currency

If you are receiving a large transfer in foreign currency which exceeds your project cost, it would be essential to have a space, preferably outside the workplace, where the money is hidden and safe. This is important considering that many humanitarian actors are visited by the GoS security agencies on a regular basis.

5. Disposing or safe-keeping of documents related to money transfers Disposing of or hiding documents referring to money transfers conducted in foreign currency by your organization is important, as any evidence of participation in such a transfer can be damning if found by the GoS security agencies. CONTACT Nicholas Bodanac Humanitarian Access Team [email protected]

The Humanitarian Access Team (HAT) was established in Beirut in March 2015 in response to the collective challenges facing the remote humanitarian response in Syria. Successful humanitarian and development interventions require a nuanced and objective understanding of the human ecosystems in which these interventions occur. To this end, the HAT’s most important function is to collect, triangulate, synthesize, analyze and operationalize disparate data and information. Since 2015, HAT analysis has provided a forward-looking template for international interventions in Syria, and facilitated an increasingly nimble, adaptive, integrated, and ultimately impactful international response to the Syrian con ict.