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Assad’s Ritz Model to Keep its Economy Afloat

Updated: Nov 9, 2020

The new US sanctions under the Caesar Act prevent external actors from engaging in a significant transaction with Assad, putting Syria in a state of near-complete isolation. The country as a result is entering into one of the most critical, and least predictable, phases since the beginning of the country’s brutal 10-year conflict. Under pressure to find a solution on his own, Assad will continue extorting pro-government wealthy businessmen to stabilise the value of the Syrian Lira. Towards that end, corruption and tax evasion are being used as tools to crack down on the regime cronies who do not pay up their share voluntarily.

The Syrian conflict has led to a drastic decline in the country’s economic activity and weighed heavily on the Syrian currency, which lost over 50% of its value since the beginning of the year. Likewise, living conditions have continued to deteriorate sharply in regime-held areas despite military conditions progressively becoming more favourable to the regime. Bashar Al Assad’s main backers, Iran and Russia, may have assisted massively to help the regime win the war. However, neither have been able to sufficiently help Al Assad with the economy. Therefore, the regime has resorted to unconventional short-term tactics to deal with its economic crisis.

Many of Syria’s business elites, especially those who continued to operate throughout the conflict, accumulated their wealth, directly or indirectly, through their connections with the regime. Thus, Assad may have felt entitled to ask them to return the favor. A large number of notable business figures – such as Samer Foz, Mohammad Hamsho, Waseem Al Qattan and Bara’ Al Katerji – were summoned for a shakedown. The meeting was held in September 2019 at the Sheraton Hotel in Damascus under strict confidentiality.

According to various sources, the attendees were pressured to make US dollar deposits to the central bank with the aim of making foreign exchange available to be sold at a dollar-to- pound rate lower than the prevailing market price. However, most of the cronies did not pay their dues, resulting in a further decline in the value of the pound. So now, the regime has come up with a different tactic to secure more foreign exchange. A crackdown began in October 2019 against allegedly corrupt businessmen, to force them to hand over some of their wealth.

In response, the regime has come up with a different tactic to step up its pressure on businessmen affiliated with it. Under the pretext of fighting corruption, the regime has started to freeze the assets of well-known cronies forcing them to pay large amounts of money.

The most prominent among such figures is Rami Makhlouf, who has been frequently placed under extensive financial examination. Many of his assets and shares, as a result, were seized or frozen, including a chain of hotels, duty-free markets, finance companies and the country’s main mobile phone company SyriaTel.

The regime has also targeted government officials who have indulged in illicit financial activities. Among them are Hazwan Al Waz, who served as education minister between 2012 and 2018 and Fadi Al Dabbas, the former president of the Football Association.

While most of those people were investigated for legal charges, such as unpaid loans and taxes, the anti-corruption campaign was selectively implemented to target some while turning a blind eye towards others. According to a source close to the regime, many of the business figures were targeted because they did not initially deposit their dollar hoards with the central bank, or because their participation was not deemed satisfactory.

That may explain why Samer Foz, who apparently paid what he was asked, was not targeted while other businessmen who attended the above-mentioned meeting, such as Hamsho, were targeted. Other attendees, such as Wasim Kattan, were reportedly verbally told to pay or face the consequences. But as soon as Kattan did as “advised, the scrutiny into his affairs was reportedly terminated.

The selective and transactional nature of the supposedly anti-corruption campaign has attracted attention even among the regime’s sanctioned media outlets. Consequently, the issue was brought up in a TV interview by the Syrian News Channel with Al Assad himself. He claimed that the “accountability” campaign began more than three years ago, but that the effort did not gain public attention until prominent business and government figures were ensnared. He also admitted that businessmen who attended the Sheraton hotel meeting in September were asked to help state institutions, notably the central bank, and that they did so.

Assad’s responses confirm that the regime is unable to use conventional methods to overcome the country’s financial and economic crisis. Thus, those, including cronies and warlords, who benefited from Syria’s war economy are being forced to contribute to stabilising the currency. Therefore, the recent crackdown on Rami Makhlouf, which has provided the regime with much-needed resources, will be used as a cautionary tale to force others to comply. Whatever effects might come, however, will be short-lived due to the structural flaws and lack of economic activity, which cannot be fixed by a shakedown.

Economic crisis and financial regulations in Syria

Image: licensed under CC BY-SA 2.0


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