Syria's political crisis puts it on edge of economic precipice

As companies struggle to survive, economists warn conditions will worsen unless real solutions are found to end the turmoil between Assad government and protesters.

DAMASCUS //At a staff meeting this week, employees at a small but successful private company in Damascus were told they would be working without pay this month, a sign of gathering economic storm clouds, as Syria struggles with a grave political crisis.

According to one of the workers, managers announced pay would be halted for most staff members immediately, with employees asked to stay on effectively as volunteers in order to keep the firm ticking over. Crucially, no timetable was set for when payment of salaries would be resumed.

"They said they didn't know when things would be back to normal, and that it would depend on what happened on Friday," he said, on condition of anonymity. He also asked the company not be named because it has made no public announcement of the decision.

"If things are quiet on Friday, maybe it will be OK," the employee said. "But if it's another one like we had last week, then I'll probably lose my job entirely. I expect that to happen."

The Syrian authorities have been insisting all is well, projecting an air of confidence and normality, and trying to allay any sense of panic that the country might be teetering on the brink of an economic precipice, after more than six weeks of political unrest that has shaken the nation.

With economic statistics in Syria hard to come by and widely considered unreliable even when available, there is little hard data to show the current state of the economy. Anecdotally however, the situation is difficult, and worsening.

Rumours of bread shortages last week sent many Syrians running to bakeries to stock up - a move that actually created a shortage and further fuelled the rumours.

The government stepped in and issued a statement that bread was in plentiful supply, something that did little to calm nerves. "If there was no problem, the government wouldn't say anything, the fact they mentioned it made us sure there was something wrong," said Abu Ghassim, a father of one from a middle-class family.

Syria's currency has similarly been subjected to panic selling that by last week had knocked some 10 per cent of its value in relation to the US dollar.

The central bank moved to prop up the exchange rate, using its hard currency reserves to support the Syrian pound and, more recently, raised interest rates on deposits in local currency - an effort to both stop people shifting to dollars en masse and to stop them taking money out of the banks, fearing the system was about to run into trouble.

For now, at least, the currency appears to have stabilised without losing much of its value, and panic bread buying has subsided. Economists however warned conditions will worsen unless real solutions are found to end the turmoil.

"At the moment, we don't feel we are in a dangerous situation but we cannot say how long Syria will be able to last if things remain as they are," said one leading economic adviser to the government, speaking on condition of anonymity.

In areas directly affected by anti-government protests and by the violent crackdown by the authorities against demonstrators, economic activity has been hit hard.

For example, in Daraya, a suburb just south of Damascus which has been sealed off by army units in recent weeks, military checkpoints and road closures have all but choked the furniture-making businesses that dominate the area, according to residents.

"No one can come in to buy the furniture we make, and we can't get materials to build it, or transport it out easily," said one businessman running his own carpentry shop. "The danger is that all the young men who used to be busy working are now sitting around all day with nothing to do, which really isn't a solution."

In central Damascus the usually bustling shopping areas are largely quiet. Although in the past few days there has been much more traffic in the capital - a development seized upon by the state-run media as proof that everything has now returned to normal - shopkeepers complain that sales are dramatically down.

"People are only buying essentials and they're saving the rest of their money just in case things get worse," said a clothing store owner in Salheyeh, a place normally popular with relatively affluent Syrians. "Now, we're not selling anything, I'm not earning enough money to pay the electricity bill, let alone pay the staff," he said.

Even powerful businessmen who enjoy lucrative monopolies are complaining of the slowdown, especially those heavily invested in the tourism industry. Last year brought record numbers of foreign visitors to Syria, pumping billions of dollars into the economy and, with the tourism ministry predicting further growth this year, Syrian companies invested more into the sector.

But with protests and violence spreading, they are now facing a total collapse of tourism in 2011, according to analysts. Tourists have already been cancelling trips or heading home early, particularly European travellers, advised to get out of Syria immediately by their embassies.

"The situation has had an impact on the economy, there has been a drop in tourism, in production and a rush towards the US dollar," said Nabil Sukkar, a former World Bank economist who now heads an independent financial consultancy in Damascus. "At the moment I would say the effects remain manageable but the longer any uncertainty continues, the more significant the impact will be."

With the president Bashar al Assad reshuffling his government last month, the old pro-market economic team - long criticised for supporting a handful of well-connected, business tycoons, at the expense of the poor - has been dropped and replaced by one promising a greater level of support for ordinary families.

A raft of economic pledges have been made, everything from more jobs for university graduates, to cutting fees paid by big state-subsidised industries and waivers on fines for overdue electricity bills. Salaries have also been raised across the board for government employees.

Before the protests broke out, officials had been cutting massive subsidies they said the country could ill afford to pay, while looking for billions of dollars in foreign investments to boost growth.

That talk has now ended, at least publicly, and some economists say, the government has lurched in the other direction - now risking profligately spending money to satisfy the silent majority, which has not yet taken part in demonstrations.

Abed Fadliyeh, dean of the economics faculty at Damascus University, acknowledged there had been an economic slowdown and that times were difficult. However he said he was "very optimistic" about the new strategy, one aimed at greater social justice, rather than simple growth.

"For the last ten years the government made the top ten per cent of the population its economic priority while ignoring the needs of the other 90 per cent," he said. "Now there has been a huge change and the talk is about raising standards of life for the 90 per cent, for the ordinary people.

"In the long run, that is the only real answer, and it will be better for everyone. The question now is implementation, the programme must be implemented"