SARG EFFORTS TO PREPARE FOR POSSIBLE NEW SANCTIONS

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 006280 SIPDIS SIPDIS NEA/ELA NSC FOR ABRAMS/DORAN TREASURY FOR GLASER/LEBENSON EB/ESC/TFS FOR SALOOM E.O. 12958: DECL: 11/30/2015 TAGS: ECON EFIN EINV ETTC SY SUBJECT: SARG EFFORTS TO PREPARE FOR POSSIBLE NEW SANCTIONS REF: A. REF A: DAMASCUS 6131 ¶B. REF B: DAMASCUS 4435 ¶C. REF C: DAMASCUS 5567 ¶D. REF D: DAMASCUS 5373 Classified By: CDA: Stephen Seche for Reasons 1.5 b/d ¶1. (C) Summary. The SARG has benefited initially from Syrians' fears of new international economic sanctions, as the average Syrian,s instinct has been to rally around the flag when threatened from the outside. The SARG,s message has been that the country is well placed to withstand the consequences of sanctions if imposed, but that the SARG is working in the interim to subvert the sanctions effort. Syrians view announcements of new European business investment as a hopeful sign that the international community,s will is fracturing. With the fear of sanctions, however, beginning to show signs of momentarily receding, the SARG's own economic mismanagement is once again becoming evident to the average Syrian. End summary. ¶2. (C) Following the October 20 release of the Mehlis report, Syrians were increasingly preoccupied with what potential new economic sanctions would mean for the country and for them personally. The SARG has attempted to capitalize on this fear to rally public support as it strives to play the part of protector. The SARG has used four main tactics to do so: working to undermine the country,s economic isolation though travel and announcements of significant new foreign direct investment (FDI) (ref D); promising to continue its incremental economic reform efforts; publicly protecting its currency (ref A); and establishing a cabinet committee to formulate a national plan for mitigating the effects of possible new sanctions. An increasingly strident corollary to the SARG,s message is that it is the patriotic duty of every Syrian to do their part to support the SARG,s efforts, in part, by not buying dollars. ¶3. (U) Stories on sanctions have been in the state-owned press regularly since the Mehlis report was published. The most enduring storyline has been one of reassurance that crosses over to defiance: the Syrian economy is self-sufficient and therefore well-placed to withstand any new sanctions the international community may impose. Supporting the above editorial theme has been the generous press coverage of Deputy PM Dardari,s announcements implying a SARG master plan for managing the effects of potential new sanctions. Part of the supposed SARG plan has been attracting new FDI to replace economic opportunities lost because of the international pressure the country currently faces. ¶4. (C) Dardari,s trumpeting of ambitious new FDI projects started in August (ref B),picked up speed in September (ref C),and now has become frenetic. This week alone, D/PM Dardari publicly commented on a growing list of FDI projects: a one billion USD German investment in three separate projects, an $800 million investment by Total to build a new 140,000 bpd refinery, $200 million in financing from the European Investment Bank (EIC) for a new 750 megawatt power plant, and various Gulf projects worth a total of five billion USD. The Syrian business community is convinced the Gulf is awash in petro dollars and therefore believes Syria will get its share of new investment from there. Our business contacts also point to the European investments announced by Dardari as proof that the Europeans are pursuing a different course of action from the USG and will oppose any effort to extend sanctions. ¶5. (C) There is at least a shred of truth to all of Dardari,s announcements, but few have real substance. An example of Dardari taking an expression of interest and transforming it into an imminent investment is his discussion again this week of Total,s $800 million refinery. Total,s general manger in Syria, Hatem Nuseibeh, told us the SARG did approach Total about building a new refinery but the terms the SARG offered were wholly unattractive. According to Nuseibeh, Total wouldn,t seriously consider the project DAMASCUS 00006280 002 OF 002 until the SARG restructures its oil and gas sectors and allows multinationals better access to both the upstream and the downstream sectors of the industry. Nuseibeh stated flatly that the offer as currently presented by the SARG would be clearly a losing proposition for Total. ¶6. (C) During a November 2 interview with the Financial Times, Dardari announced the SARG had formed a counter-sanctions committee, which he chairs, to mitigate the effects of sanctions on the Syrian economy (ref C). Dardari,s announcement was reportedly ill-thought out, however, as both Dardari,s own office director and Ratib Shallah, President of the Syrian Chambers of Commerce, vehemently denied to us the existence of the committee in the week following the announcement. In mid-November the PM,s office released a press release announcing a renamed committee ) &the committee on economic development issues.8 Contacts have opined to us that the committee as originally presented by Dardari violated the primary SARG theme of reassurance and highlighted the ad hoc nature of the SARG,s media campaign on sanctions. ¶7. (C) A contact mentioned to us last week that he and Ratib Shallah had attended the inaugural meeting of the sanctions committee on November 22. According to him, the committee focused on identifying the country,s basic needs and ways to provide for them if economic sanctions were imposed. (Note. It is a longtime SARG policy to stockpile many basic commodities. For example, Syria currently has five million tons of wheat alone in storage facilities. End Note.) Dardari was scheduled to report the next day to President Asad on the committee,s progress and plans for next steps, but efforts thus far have remained low key to avoid encouraging individuals to horde as well. ¶8. (C) The SARG,s strategy for publicly defending its currency has been less successful (ref A). Not since the 80,s has the Syrian Pound (SP) shown volatility comparable to recent days. Last week, the SARG released the moneychangers it had arrested the week prior only to see the pound fall immediately from 57 to 60.5SP per USD, a rate not seen since 1987. The next day the SARG rearrested the moneychangers, effectively shutting down the black market. The black market finances the majority of the country,s imports and though it takes some time for the effects to be felt in the market place the consequences could be significant. Importers are already refraining from both new purchases and sales as it is impossible for them to gauge the current true value of the pound. ¶9. (C) Comment. The SARG policy of using fear of sanctions to shore up public support for the regime has had modest initial success, but its limitations are becoming increasingly evident. The regime,s largest economic vulnerability remains its currency. Its recent regressive tactics hint at the limits of SARG confidence in its own strategy (ref A). Unless the SARG changes its present course for managing the currency, its mismanagement will cause imports to dry up without the international community taking any action. Fear of sanctions has peaked after each major event in the Mehlis investigation - publishing the report, the unanimous passage of UNSCR 1636 - only to slowly ebb with time. As the fear of broad economic sanctions again trends downward, Syrians, ire over their eroding economic circumstances will increasingly shift back to those responsible for managing the country,s economy. SECHE