Syria will introduce a managed float of its currency next week, central bank Governor Adib Mayaleh said. The move will allow the pound to devalue after demand for foreign currency drove a surge in black-market rates.
“We will have a partial managed float, allow the rate to be determined by the market and intervene when necessary,” Mayaleh said in a phone interview from Damascus today. “If we see a rate, like that of 70 pounds now, which I don’t like, then we will intervene, and next week there will be a positive intervention by the central bank with the injection of foreign currency into the market.”
The pound traded officially at about 47 to the dollar before the start of protests against President Bashar al-Assad in mid-March. As the uprising spread, the central bank raised the rate to about 54 pounds in December and 57 pounds early this month. The currency traded at as much as 70 pounds per dollar on Syria’s black market this week.
The money for the float will come from the bank’s funds, Mayaleh said. While he declined to specify the size of the bank’s foreign-currency reserves today, he told Bloomberg on Oct. 21 that the reserves were about $18 billion and that Syria had spent $3 billion from a separate fund defending its currency and financing trade since protests erupted.
“This is a conscious decision by the regime and the bank to allow some kind of inflation,” said Chris Phillips, a lecturer in international relations specializing in the Middle East at Queen Mary College in London. “Clearly they want to use their reserves sparingly, and maintaining the low value that the Syrian pound has had for the last five to 10 years clearly is no longer a priority for them.”
The managed float “might be one way of saying they do need to get external funds from somewhere in order to keep the value down, which suggests their reserves are running low,” Phillips said. The move “also will offer them an opportunity in the future to blame someone other than themselves for what is inevitably is going to be a major devaluation in the currency.”
The pound has lost about 19 percent of its value against the dollar since the unrest began, according to data compiled by Bloomberg.
The central bank will work slowly to boost the pound’s value “because the devaluation that has taken place in the market is imaginary and a result of speculation,” Mayaleh said.
He denied that Syria has any liquidity problems and said any concerns about the strength of the monetary system are nothing but “fabrications. This is part of a media campaign” against the country.
Assad has blamed the unrest on foreign provocateurs stoking a “conspiracy” against Syria. His government has used tanks, armored vehicles and artillery to crush the most serious threat to his family’s 40-year rule, rejecting U.S. and European demands for him to quit. The United Nations says more than 5,000 civilians and army defectors have died during the uprising.
“We have a real economy, an agriculture industry,” Mayaleh said. “A lot of Arab countries envy us because of our production of wheat, barley, grain, vegetables, fruits. And we can live without salmon.”
International sanctions, general strikes and the crackdown have hurt Syrian businesses, with the Institute of International Finance estimating the economy shrank at least 5 percent in 2011. The International Monetary Fund forecasts a contraction of 2 percent last year while London-based research company Business Monitor International says the economy contracted 9.6 percent in 2011 and will shrink 2.2 percent this year.
Syria’s economy expanded 5.5 percent in 2010, Finance Minister Mohammad Al-Jleilati said in a September interview. Mayaleh said the economy grew more than 1 percent in 2011.
“Of course, any country that has a crisis like this will see its economic growth decline,” he said. Syria has lost $2 billion in oil revenue as a result of attacks by “terrorists” on its pipelines and infrastructure as well as European and U.S. bans on importing its oil, he said.
“There is a world war against Syria,” Mayaleh said, adding: “I have no fears. This crisis revealed how strong and united Syria is.”
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