Sunday, 15 May 2016

A Fistful of Dollars: The Dwindling Value of Syrian State Salaries

 'Since this March, the value of Syria’s currency, the pound, has been sliding fast. Some economists now warn of a serious currency crisis. The dwindling value of the pound is cutting into Syrians’ purchasing power while raising the cost of subsidies on things like oil, which is imported and must be paid for in hard currency.

 Until now, President Bashar al-Assad’s government had been able to use its foreign reserves, but these seem to have been depleted. It has also relied on financial support from its allies, primarily Iran. While the government in Tehran has spent billions of dollars on keeping its Syrian ally afloat, Vladimir Putin’s Russia seems to have contributed much less, despite intervening militarily on Assad’s side in September 2015. Iranian-backed oil shipments from Iraq are still keeping fuel flowing in Syria, and the government remains able to pay salaries, even outside areas of army control; this has been key to Assad’s hopes of one day reclaiming lost territory. But this spring, the devaluation of the Syrian pound has shown the weak foundation of the state’s influence. Little by little, the Syrian state is losing the ability to provide the services and patronage that has undergirded Assad’s rule.

 Already, the falling pound has meant that most civil servants, soldiers, and others working for Assad’s government are unable to live off their salaries. Second and third jobs, various forms of corruption, remittances from family members abroad, and a strong dose of Syrian creativity have enabled many to survive, barely. But for how long, and what happens when paychecks are simply too small and too few to move the full machinery of state?

 In mid-March 2016, Putin unexpectedly announced he would withdraw part of the Russian expeditionary corps from Syria. Although the withdrawal was largely a political stunt, the announcement set off a panic among Syrian currency traders, and by March 24, the value of the pound tumbled to an all-time low, at 500 pounds per dollar. The government urged calm, but seemed unable to stem the decline. Syria’s currency reserves, which had been estimated at around $18 billion at the start of the war, were now reportedly down to $700 million. On May 7, the value of the pound dropped past 600 to a dollar. The Central Bank blamed a “fierce media campaign” by Syria’s enemies, but this did little to restore public confidence in the economy.

 At 1,000 pounds to the dollar, an average salary in Syria would be worth $20 to $30, while the living costs of a family are calculated at around $500 per month. The situation is looking very grim indeed and reports have begun to emerge that people near President Assad’s inner circle are moving money abroad. “The Damascus businessmen are now actually beginning to be afraid, for real,” a trader told the Financial Times.

 Some 2.7 million people draw a salary or a pension from the state. This makes the government by far the largest employer in Syria and a vastly dominant economic actor in the regions still under Assad’s control. State employees received a significant pay hike in June 2013 and another, smaller one, in September 2015, but these have long since been outstripped by inflation; in real terms, their income is now much less than it was five years ago.

 Most troublingly for Assad, that includes the security sector. The basic monthly pay of a soldier in the Syrian Arab Army is reportedly 18,000 Syrian pounds, though this can be complemented by various bonuses and officers earn more. Five years ago, 18,000 pounds would have meant $383, but at today’s rates, it is closer to $28. Last summer, the government ordered a special salary bonus of 10,000 pounds monthly for frontline troops, to compensate for inflation and to boost morale. But by the time the bonus began to be paid out in June 2015, its value had shrunk to a modest $34 and it is now down to $16.

 These problems are slowly digging into the fundament of Assad’s power. As noted by the Syrian researcher Kheder Khaddour, the hollowing-out of Syrian military salaries since 2011 has pushed the officer corps even deeper into corruption. In order to make ends meet, many commanders allow recruits to bribe their way out of the service, aggravating an already crippling manpower shortage. Many units seem to contain “ghost soldiers,” who are listed on the payroll only to generate income for those in charge. The role of non-state funding for pro-government paramilitary groups, from Iran or Assad-connected businessmen, has grown tremendously. Since local militiasare often able to provide higher salaries, they are a double-edged sword. On the one hand, the proliferation of militias has strengthened Assad’s military might; on the other, it is empowering parochial interests and weakening the military as a national institution.

 Syria’s crumbling economy will thus continue to undermine both Assad’s military might and his capacity to govern, just as surely as it undermines the Syrian state and any hope for post-war reconstruction. The question is how much more the pressure can rise before something, deep inside the state, snaps.'

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