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IdentifierCreatedClassificationOrigin
05DAMASCUS6280 2005-12-01 15:59:00 CONFIDENTIAL Embassy Damascus
Cable title:  

SARG EFFORTS TO PREPARE FOR POSSIBLE NEW SANCTIONS

Tags:   ECON EFIN EINV ETTC SY 
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					  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