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Crisis takes toll on Syria economy

Months of unrest, increasing sanctions and questionable fiscal policies are all playing a role. Yet the effect on President Bashar Assad's grip on power remains unclear.

January 26, 2012|By Alexandra Zavis and Alexandra Sandels, Los Angeles Times

U.S. and European oil embargoes have cost Syria about $2 billion since September, Oil Minister Sufian Alao said last week.

Europe accounts for the vast majority of Syrian oil exports, and the government is struggling to find alternative buyers. Not many countries are in a position to refine the heavy crude produced in Syria, economists say. Although India and China have been suggested as potential markets, the shipping and insurance costs could prove prohibitive.

Financial sanctions are making it increasingly difficult for business owners to operate in a global economy. Credit cards are rejected and money transfers are blocked, they say.

Layoffs have become rampant, particularly in opposition strongholds, which have borne the brunt of the government's crackdown.

"I had 40 people working in my furniture factory. Now I have zero," said a manufacturer from the Damascus suburb of Saqba who also asked to be identified only as Mohammed. "Seven months ago, I was forced to close down my factory and the showroom where I displayed my furniture."

Security forces repeatedly stormed the area, he said, costing him an estimated $200,000 in lost business and property damage.

"I was forced to take part of my wife's gold jewelry and sell it," he said, "and I was a big merchant."

Because of fuel shortages, more people are using electricity to heat their homes, overburdening the supply. Daily power cuts last up to 16 hours in some areas.

Syrian officials have blamed the economic pain on the opposition at home and abroad. In a speech this month, Assad asked if being a revolutionary meant depriving people of "the cooking gas they need on a daily basis to avoid hunger, or the heating fuel they need to avoid catching their death from the cold?"

But analysts and Western officials say the government's own fiscal policies have contributed to the crisis.

Soon after the protests began, the government increased fuel subsidies by 25% and state salaries by up to 30% in a bid to quell public anger. Then, in September, the government unveiled a $26.5-billion budget, a 58% increase over the previous year.

Analysts questioned where the money would come from. Three months later, Prime Minister Adel Safar instructed public authorities to reduce overheads by 25% with the exception of salaries.

To protect foreign currency reserves, the government banned imports of many consumer products, causing immediate price hikes and shortages. But the outcry from the private sector was so great that the government reversed its decision in less than two weeks.

When Turkey, a major trading partner and longtime ally, followed the Arab League's lead and imposed a raft of sanctions late last year, Syria retaliated with a 30% tariff on all Turkish imports, a move that could drive some prices even higher, a Western official said.

Syrian officials say the country has withstood decades of sanctions and retains staunch allies, including Russia, China and Iran. They portray the latest international measures as an opportunity to stimulate domestic production.

But among those who frequent the capital's chic new cafes and shops, few relish the prospect of a return to the kind of isolationist economy built by Hafez Assad in the 1980s, a time when even tissue paper and diapers were in short supply.

Back in the Old City bazaar, Abu Mohammed peered hopefully from the door of his fabric store. "Today there is nice weather, so maybe we will get a customer or two," he said.

Asked how long he could keep going, he shrugged and laughed. "We are like camels in the desert," he said. "We can keep going for a long time."

alexandra.zavis@latimes.com

Times staff writer Zavis reported from Damascus and special correspondent Sandels from Beirut. Special correspondents Rima Marrouch in Damascus and Katie Paul in Beirut contributed to this report.

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