Tag: Assad

As Congress Prepares for Vote, Syria’s Inflation Hits 257%

As prospects of a U.S.-led military intervention in Syria hang in limbo, the foreign exchange black market for the Syrian pound (SYP) has become increasingly volatile. In countries with troubled currencies, such as Syria, black-market exchange rates provide a reliable gauge of economic expectations. Judging by the erratic performance of the black-market Syrian pound/U.S. dollar (USD) exchange rate, the Syrian people’s expectations have been on quite the roller coaster ride, as the U.S. Congress prepares for what will likely be a very close vote on a Use of Force resolution.

  • Following Secretary of State John Kerry’s initial call for military intervention in Syria, on August 26th, the SYP experienced a one-day drop of 24%—reflecting Syrians’ heightened fears of U.S. military conflict.  
  • On August 29th, two events occurred that reversed this slide. In Damascus, the Syrian government renewed its attempts to crack down on black-market currency trading. And, over 4,000 miles away in London, the British Parliament voted down a motion authorizing military action in Syria. In consequence, the SYP rebounded by a whopping 26% over the course of two days.
  • The U.S. Senate Foreign Relations Committee’s consideration of a use of force resolution seems to have once again raised Syrians’ expectations of a U.S. military strike, as it set the SYP on another slide. Since September 3rd, the pound has lost 10% of its value.

For some perspective on how the West’s march to war has affected Syria’s currency, and ultimately inflation, let’s take a look at how things have changed over the course of the past month: On August 6th, the black-market SYP/USD exchange rate was 205, yielding an implied annual inflation rate of 191%. As of September 6th, the black-market SYP/USD exchange rate sits at 250, yielding an implied annual inflation rate for Syria of 257%.

For more on the Syrian pound, see the Troubled Currencies Project.

The Syrian Pound Zigs and Zags

Following U.S. Secretary of State John Kerry’s saber-rattling statements on the 26th of August, the value of the Syrian pound (SYP) has zigged and zagged. Indeed, the SYP lost 24.7% of its value against the U.S. dollar in the two days following Kerry’s announcement (moving from 225 to 270 SYP/USD). Then, yesterday, we saw a sharp reversal in the course of the pound. Over the past two days, the SYP regained 25.58% of its value, bringing the black-market exchange rate back down to 215 SYP/USD. At this rate, the implied annual inflation rate is 209.85% (see the charts below the jump).

So, what caused the recent strengthening of the Syrian pound? We have to look no further than the eroding support for a U.S.-led strike against Syria. Yes, the United States has lost support from important allies, the United Kingdom, Canada, and Italy.

In addition, Syrian authorities have cracked down again on black-market currency trading. In the past week, the authorities have shut down a number of currency traders; made “friendly” reminders to the public of the penalties of trading on the black market—imprisonment of 10 years and a hefty fine; and warned Syrians to stay away from “counterfeit” dollars that have supposedly been circulating. The authorities’ “get tough” policy followed speculation that the SYP/USD rate would surpass the 300 mark.

I have established a page to track current black-market exchange-rate and implied inflation data for the Syrian pound, as well as for troubled currencies in Iran, Argentina, North Korea, and Venezuela. For more, see: The Troubled Currencies Project.

Troubled Currencies Project Update: Syria, Iran, and Egypt

Syria Since August 26,  when U.S. Secretary of State John Kerry began laying the groundwork for military intervention in Syria, the Syrian pound (SYP) has taken a beating on the black market. Indeed, the SYP has lost 24.07 percent of its value against the U.S. dollar (USD) in the two days since Kerry’s announcement. Currently, the exchange rate sits at 270 SYP/USD, yielding an implied annual inflation rate of 291.88 percent. In countries with troubled currencies, there is no better measure of economic expectations than the black-market exchange rate. The recent deterioration in the SYP/USD exchange rate clearly indicates that Syrians are anticipating Western military intervention in the near term. 

IranThe initial weeks of the Rouhani presidency have seen renewed economic confidence, as reflected by the Iranian rial’s (IRR) black-market exchange rate. The new central bank governor, Valiollah Seif, has stated that his primary concerns are to rein in inflation and boost economic stability. Over the past few weeks, the rial has strengthened on the black-market, and inflation has moderated somewhat. That said, recent international saber-rattling over Syria clearly has spooked the Iranian public. In the two days since Secretary Kerry first made his case for intervention in Syria, the value of the Iranian rial has dropped 4.74 percent on the black market, to 32,700 IRR/USD. This yields an implied annual inflation rate of 52.10 percent, up from 44.89 percent, prior to Kerry’s announcement.

EgyptSince the fall of the Morsi government, public confidence and support for the military regime has boosted the value of the Egyptian pound (EGP). Prior to the military takeover, the black-market exchange rate sat at 7.6 EGP/USD. Since Morsi’s ouster, the pound has appreciated by 7.34 percent, to 7.08 EGP/USD. This yields a current implied annual inflation rate of 18.62 percent, down from 27.85 percent in the final days of the Morsi government. In recent weeks, the Central Bank has been auctioning off up to $40 million in foreign exchange, three times per week. This rather modest sum has adequately met the demand for foreign exchange at rates close to the official exchange rate of 6.99 EGP/USD.

 

For more information on troubled currencies in these countries and others, see The Troubled Currencies Project.

What Is Syria’s Iranian Credit Line Worth?

Last week, the press was filled with reportage about Tehran throwing a lifeline – actually a credit line of $3.6 billion  – to the Syrian regime.

The announcement of this Iranian lifeline should have changed the economic expectations of Syrians in the throes of what has morphed into a bloody civil war. Indeed, if it materializes, the $3.6 billion credit line should allow Damascus to conserve its dwindling supply of foreign exchange. This development should have thrown a positive expectation shock into the market for the Syrian pound.

So, did economic expectations receive a positive boost from the announcement of Tehran’s lifeline? Let’s go back to May 27th. That’s when the tentative credit line agreement was announced. A mini event study shows that the initial agreement had no material impact on expectations, as objectively measured by the Syrian pound/U.S. dollar black-market exchange rate. Indeed, the SYP/USD exchange rate was unmoved by the tentative agreement (see the accompanying table).

The next event in this credit line story occurred on July 30th, when it was announced that the May agreement had been finalized and signed on July 29th. Again, expectations and the SYP/USD exchange rate remained unmoved (see the accompanying table):

What, then, can we say about the Tehran-Damascus deal? Well, objective data – namely market prices – tell us that the widely-reported event had no material effect on Syrians’ economic expectations. Accordingly, the implied inflation rate for Syria remained unmoved. Using these objective black-market exchange-rate data, I estimate that Syria is currently experiencing an annual inflation rate of 190.7%.

In short, Syrians viewed the deal as irrelevant. They think that either Iranians won’t deliver on the promised credit line, or that if they do, it will not change the situation on the ground.

I often tell my students to be mindful of the late Prof. Armen Alchian’s “95% rule”: Ninety-five percent of what you read that passes for finance and economics is either wrong or irrelevant. For the time being, it appears that Syria’s Iranian credit line falls under the latter category.

I have established a page to track current black-market exchange-rate and implied inflation data for the Syrian pound, as well as for troubled currencies in Iran, Argentina, North Korea, and Venezuela. For more, see: The Troubled Currencies Project.

Value of the Syrian Pound Hits an All-Time Low

As I have documented previously, the economic devastation and international sanctions that have accompanied Syria’s civil war have wreaked havoc on the country’s currency, the Syrian pound (SYP). In a desperate, wrong-headed attempt to save its troubled currency, the Assad regime has imposed harsh penalties for currency trading on the black-market. This strategy proved wildly unsuccessful when it was utilized by the Iran in October of 2012.

Indeed, as was the case in Iran, attempts to suppress currency exchange have sparked a panic – a run on the Syrian pound. As of 10 July 2013, the value of the Syrian pound on the black market has hit an all time low, with the current black-market exchange rate now sitting at 295.00 SYP/USD.

As the accompanying chart shows, this has sent the implied monthly inflation rate in Syria skyrocketing.

Yes, Syria’s implied monthly inflation rate is now 91.9%. This means that Syria has exceeded the threshold for hyperinflation (an inflation rate of 50% per month).  Only time will tell if this run on the Syrian pound will continue. But, for the time being, we can be sure that the Syrian pound will remain a troubled currency.

I have established a page to track current black-market exchange-rate and implied inflation data for the Syrian pound, as well as for troubled currencies in Iran, Argentina, North Korea, and Venezuela. For more, see: The Troubled Currencies Project.

Syria’s Annual Inflation Hits 200%

In an attempt to beat Western sanctions and halt the fall in the Syrian pound, the Assad regime – with the help of Iran, Russia, and China – has begun conducting all of its business in rials, roubles, and renminbi. This decision supplements other existing arrangements between Syria and its allies that are keeping the Syrian economy on life-support. These include transfers of $500 million per month in oil and an unlimited credit line with Tehran for food and oil-product imports.

According to Kadri Jamil, Syria’s prime minister for the economy, this life support is necessary because Syria’s devastated economy is the target of an elaborate plot, hatched by the U.S. and Britain, to “sink the Syrian pound.”

So, what about the sinking pound? As the accompanying chart shows, the Syrian pound has lost 66.2% of its value in the last twelve months.

The rout of the Syrian pound has been widely reported in the press.  But, Syria’s inflation problems that have accompanied the collapse of the pound have gone largely unreported.  That’s because, beyond the occasional bits of anecdotal evidence, there has been nothing to report by way of reliable economic data.

To fill that void, I employ standard techniques to estimate Syrian’s current inflation. Currently, Syria is experiencing an annual inflation rate of 200% (see the accompanying chart).

Indeed, Syria is experiencing a monthly inflation rate of 34%. To facilitate the monitoring of the quickly deteriorating situation in Syria, I am creating a resource which will allow readers to view up-to-date data on the Syrian pound and the country’s inflation problems. Soon, black-market exchange-rate data and ­inflation estimates for countries with troubled currencies like Syria will be made available via the “Troubled Currencies Project” – a joint Cato Institute-Johns Hopkins collaboration under my direction. In consequence, the days of Syria’s plunging pound and raging inflation being covered in a shroud of secrecy are soon coming to an end.

Washington Foolishly Tilts Towards War in Syria

The bitterest fights tend to be civil wars. Today, Syria is going through such a brutal bloodletting. 

The administration reportedly has decided to provide arms to Syria’s insurgents. It’s a mistake.

This kind of messy conflict is precisely the sort in which Washington should avoid. Despite the end of the Cold War, the U.S. armed services have spent much of the last quarter century engaged in combat. At the very moment Washington should be pursuing a policy of peace, policymakers are preparing to join a civil war in which America’s security is not involved, other nations have much more at stake, many of the “good” guys in fact are bad, and there would be no easy exit.

Military action should not be a matter of choice, just another policy option. Americans should have something fundamental at stake before their government calls them to arms.

No such interest exists in Syria.

Intervention against Damascus means war. Some activists imagine that Washington need only wave its hand and President Bashar Assad would depart. However, weapons shipments are not going to oust a regime which has survived two years of combat. Intervening ineffectively could cost lives and credibility while ensuring heavier future involvement.

There is no serious security rationale for war. Damascus has not attacked or threatened to attack America or an American ally. America’s nearby friends, Israel and Turkey, are capable of defending themselves.

Another concern is the conflict spilling over Syria’s borders. But this does not warrant U.S. intervention. Maintaining geopolitical stability rarely approaches a vital interest justifying war.

Moreover, intervening would not yield stability. Washington foolishly attempted to sort out Lebanon’s civil war three decades ago and was forced into an embarrassing retreat. There’s no reason to believe joining the Syrian killfest today would yield a better result.

Another claim is that ousting the Assad dictatorship, allied with Tehran, would weaken Iran. Likely so, but then Iran would have a greater incentive to emphasize ties with Shia-dominated Iraq, which also has been aiding Assad.

Moreover, a chaotic, fragmented, sectarian Syria likely would do more to unsettle Iraq, Israel, and Lebanon, allied or friendly to America, than Iran. Tehran’s divided elite also might close ranks in response to an increased feeling of encirclement.

Advocates of U.S. action point an accusing finger at Iran, Lebanon’s Hezbollah, and Russia for helping Damascus. However, Qatar and Saudi Arabia are providing money and weapons to the rebels. Turkey is offering sanctuary for insurgents. The international nature of the struggle is a good reason for Washington to stay out.

Syria’s chemical weapons stockpiles also argue against intervention. Chemical agents are the least effective and most geographically constrained of so-called weapons of mass destruction. Thus, “leakage” is more likely to threaten Syria’s neighbors than America.

Weakening or overthrowing the Assad regime is more likely to release chemical agents to potentially hostile governments or groups. Air strikes would loose chemicals against surrounding civilians. Boots on the ground would mean regime change, leaving Damascus no reason not to use chemical weapons as a last resort defense.

The most pressing concern is humanitarian. But Syria is not a case of genocide committed by an armed government against an unarmed people. There are two forces ready to kill. Defeating one does not mean peace. Rather, it means the other gets to rule, perhaps ruinously.

In both Kosovo and Rwanda the U.S.-backed victors committed atrocities. In Syria reprisals are certain whoever wins. Neither Afghanistan nor Iraq offer reasons for optimism—extended blood-letting, interminable involvement, disappointing outcome.

The result in Syria actually could be far worse, because of the rise of Islamic radicalism among insurgents. These fine folks recently executed a 15-year-old boy for blasphemy in front of his parents.

The final pitch for war is camouflaged as a call for American leadership. However, whether leader or follower, the U.S. would lose by attacking Assad.

Although diplomacy looks forlorn after two years of combat, it remains the best hope. Despite recent gains, Assad’s forces remain unlikely to reassert control over the northern half of the country. The opposition’s divisions and Assad’s outside assistance make a complete rebel victory unlikely. All of the surrounding states have much to lose from continuing war. A second best modus Vivendi might be possible.

Even if diplomacy fails, however, Washington should stay out of the war.

Syria is a tragedy. There is no reason to make it America’s tragedy. President Barack Obama should ask: does he want his administration to be defined by involvement in an unnecessary and unpopular no win war, as was that of his predecessor?