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Syria's Assad Is Facing a Currency Crisis

A Syrian rebel commander distributing the salaries of rebels in US dollars.
AFP | Getty Images
A Syrian rebel commander distributing the salaries of rebels in US dollars.

Even as President Bashar al-Assad of Syria is proclaiming battlefield momentum against the insurgency with the help of his Hezbollah ally, he appears to be facing a new threat: a rapidly weakening currency that has unnerved many Syrians.

The currency, the Syrian pound, fell about 30 percent in value against the dollar over the weekend, partly on news that the United States intended to arm some elements of the rebellion seeking to topple Mr. Assad.

(Read More: US to Increase Military Support to Syria Rebels )

Money traders and economists said the plunge might have been accelerated by the apparent unwillingness — or inability — of Syria's Central Bank to halt it by buying pounds with dollars or euros, suggesting the government's supply of foreign exchange reserves is running low.

The Central Bank governor, Adib Mayalah, announced Tuesday that to help stabilize the pound, Syria would tap into a $1 billion credit line provided by Iran. That appeared to be helping on Wednesday. But the effects of that aid are considered temporary at best, as Iran is facing its own severe financial constraints.

For Mr. Assad, a number of basic financial problems appear to be coalescing after more than two years of conflict: Western sanctions that have collapsed Syria's main money-earning industries of oil and tourism, a near-collapse of regular commerce inside the country and the cost of fighting the insurgency, which has left more than 93,000 people dead and millions displaced.

The pound, which traded at about 70 per dollar before the uprising against Mr. Assad began in March 2011, has been eroding gradually since then and was trading at 170 per dollar last week. Money traders in Syria and the United States said it nose-dived starting last Friday and had weakened to 220 per dollar by Monday, reflecting some chaotic selling by Syrians worried that the pound could weaken further and wipe out their savings if they did not convert to dollars or euros.

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Syria experts who once estimated the Central Bank had at least $17 billion in foreign exchange reserves before the conflict now believe that because of Mr. Assad's international isolation and the cost of the war that amount has dwindled to as little as $2 billion.

"Syria's government doesn't have cash," said Andrew J. Tabler, a Syria scholar at the Washington Institute for Near East Policy. "They might be good at shooting people, but they're not so good at the economic stuff."

Others said the Central Bank's effort this week to arrest the pound's decline had strengthened it to about 190 per dollar by Wednesday, but they suspected the pound would resume falling.

Some were suggesting it could go to 500 to the dollar, which could cause enormous inflation problems in Syria.

A Syrian expatriate currency market trader, who spoke on condition of anonymity because he has relatives in the country, said he believed the credit line from Iran was a short-term psychological tool and might not even exist. A further strengthening of the pound would be a telling indicator.

"Unless they're able to knock it back to 150, I would imagine it would just be a cosmetic process," he said. "I'm personally extremely skeptical."

In a separate possible signal of Iran's frugality, officials of the Palestinian militant organization Hamas, which governs the Gaza Strip, said Wednesday that Iranian financial assistance had declined sharply in recent months. They attributed it to Hamas's decision to break with Mr. Assad over his efforts to crush the Syria uprising.

"We are suffering from a financial crisis and we are trying to go beyond the problem," said Ghazi Hamad, deputy minister of foreign affairs in the Hamas government.

Officials in Gaza refused to disclose figures, but experts in Gaza estimated that Iran had been channeling about $20 million a month to Gaza.

(Read More: Jordan Asks for International Aid to Deal With Syrian Refugees)

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