Sanctions Pose Growing Threat to Syria’s Assad – By NADA BAKRI

BEIRUT, Lebanon — The Syrian economy is buckling under the pressure of sanctions by the West and a continuing popular uprising, posing a growing challenge to President Bashar al-Assad’s government as the pain is felt deeply by nearly every layer of Syrian society.

With Syria’s currency weakening, its recession expanding, its tourism industry wrecked and international sanctions affecting most essential sectors, the International Monetary Fund now expects Syria’s economy to shrink this year, by at least 2 percent.

Through nearly seven months of protests and a brutal crackdown that has killed more than 2,900 people, Mr. Assad and his political supporters have demonstrated a cohesiveness that has surprised even his critics. Differences that may exist have stayed inside a ruling clique that draws on Mr. Assad’s own clan and sect, and the security services have yet to fracture.

But analysts in the region and officials in Turkey and the United States say the faltering economy presents a double blow to a government that had once relied on its economic successes as a crucial source of legitimacy. As many Syrians, poor and rich, feel the effects of the revolt in their daily lives, a sense of desperation is echoed in the streets, even in Damascus and Aleppo, the country’s two largest cities and economic centers.

Analysts also point out that Syria could use sanctions to rally its people against a common threat.

While neither has risen up like other Syrian cities, complaints are growing, and American and Turkish officials say they believe that the merchant elite in both cities will eventually turn against Mr. Assad.

“I can no longer afford to buy anything for my family,” said Ibrahim Nimr, an economic analyst based in Damascus, the capital. “I am not making any more money. I am facing difficulties, and I don’t know what to do.”

A businessman in Damascus, who spoke on the condition of anonymity for fear of reprisal, said: “People are not buying anything they don’t need these days. Just barely the necessities.”

American and Turkish officials say that a collapse is not imminent and that the government can probably survive through the end of the year. But they now believe it is possible that the toll of the sanctions and protests could bring down Mr. Assad in 6 to 18 months.

“We’re all waiting for the thing that will crack them,” an Obama administration official said, speaking on the condition of anonymity. “And it will be the economy that will wake everybody up, both those who support him, and Assad and his circle.”

Revenues from oil and gas exports, which account for up to a third of state revenues and are the single biggest source of foreign currency, will dry up at the beginning of November, when a European Union ban on imports will fully come into force.

The unrest has paralyzed the tourism industry, which brings in $7.7 billion a year. Several hotels in Damascus said they did not have any bookings for now or anytime in the future, and some hotel owners said that they closed down in the summer because they could no longer afford to pay salaries and bills.

An owner of a small candy shop in Souk al-Hamidiyeh, an old market in the heart of Damascus, said that he had not seen a single tourist since March, when the uprising against Mr. Assad began.

“And it doesn’t look like we will see tourists anytime soon,” the owner added.

Dik al-Jin, one of the oldest restaurants and the most popular site for weddings and parties in Homs, a city in central Syria where the uprising has the semblance of a civil war, also shut down because of a lack of customers, soon after the demonstrations broke out.

But uncertainties persist over the international strategy to put pressure on the Syrian economy. American and European officials have debated whether the sanctions will end up hurting average Syrians more than the leadership. Some analysts have contended that the government may try to paint itself as a victim and court support by casting the sanctions as a contest of “us against them.”

Indeed, in the 1990s in Iraq, which was hit by comprehensive sanctions, popular anger was often directed at the United Nations and the West, not the government of Saddam Hussein.

For now, and in spite of the fraying economy, the government seems buoyed by a sense of confidence over having blunted some of the mass protests this summer in cities like Hama and Deir al-Zour. Syrian officials also have faced sanctions before, only to weather them and seek to rehabilitate themselves once conditions in the region shift. Syrian officials also received a lift when China and Russia vetoed a resolution in the United Nations Security Council that condemned the violent oppression of antigovernment demonstrators last week.

“I do agree that they’re more confident now than before,” the American official said.

In recent months, Syrian officials in the Ministry of Economy and Trade and the Ministry of Finance have dismissed in published remarks the effects of sanctions on the economy and foreign currency reserves. In September, Mohammad al-Jleilati, the finance minister, said that the country had $18 billion in foreign currency reserves, enough to secure imports for two years. Though most experts disputed the figure, they added that given the lack of transparency, it was hard to determine the amount.

But the economic impact appears greater than in past crises, and officials in Turkey, once a crucial trading partner with Syria, are preparing to impose their own sanctions. The Syrian government’s own figures underline a waning sense of faith in the economy.

Recent statistics published by the Syrian Investment Agency, a state-run firm that oversees investment in Syria’s infrastructure, transportation and agriculture sectors, pointed to a decrease in consumer and investor confidence. The agency reported that 131 licenses for private investment projects were issued in the first half of the year, a decrease of 40 percent compared with the first six months of last year.

Assets in Syria’s five largest banks dropped by nearly 17 percent in the first half of 2011, while deposits in Lebanese banks operating in Syria were down by 20 percent from 2010, according to a report released by Lebanon’s Byblos Bank.

So far, Syrian officials, who appear to be bewildered by the uprising and how to cope with it, have announced a series of measures that most experts say are likely to deepen the crisis. Among these steps was a decision last month to ban imports of many consumer goods to protect Syria’s foreign currency reserves. The step created such a domestic and regional uproar over price increases that the government revoked it a week later.

Another decision was approving a budget of $26.53 billion, a 58 percent increase over last year’s budget and the highest in Syria’s history.

“Where are they going to bring that money from?” asked Nabil Sukkar, a former World Bank official who now runs an independent research institute based in Damascus. “That is a big question mark. We now have less revenues. No one outside is going to help us. We have reserves, but they are being drawn down.”

There were unconfirmed reports from inside Syria that employees in some public institutions were asked to contribute the equivalent of $10 every month to a special fund that goes to the government.

For years, Mr. Assad portrayed himself as a modernizer, and a newfound consumerism in Damascus and Aleppo seemed to mark a break with the drearier years associated with his father’s three decades of rule. In April, only a month after the uprising started, the International Monetary Fund forecast growth rates of 3 percent for 2011 and 5.1 percent for 2012.

“We were on our way to move toward a strong economy,” said an economic expert based in Damascus, who spoke on the condition of anonymity for fear of reprisal. “We started seeing an increase in foreign and local investments. The momentum was on until we were hit by crisis. Unfortunately, I am very pessimistic.”

Anthony Shadid and Hwaida Saad contributed reporting.

Published: October 10, 2011

sourcehttp://www.nytimes.com/2011/10/11/world/middleeast/sanctions-pose-growing-threat-to-syrias-president-assad.html?pagewanted=2&_r=1