CIRCUMSTANCE SAVES ASAD AGAIN

C O N F I D E N T I A L DAMASCUS 004610 SIPDIS SIPDIS NEA/ELA E.O. 12958: DECL: 09/21/2016 TAGS: ECON PGOV PREL SY SUBJECT: CIRCUMSTANCE SAVES ASAD AGAIN REF: A. DAMASCUS 1926 ¶B. DAMASCUS 425 Classified By: CDA Michael H. Corbin for reasons 1.5 b/d ¶1. (C) Summary. Despite the isolation resulting from the SARG,s increasingly confrontational stance vis-a-vis the international community and its immediate neighbors, the country,s economy appears to once again be saved by circumstance from SARG incompetence and malfeasance. As a result of the crisis in Lebanon, for the second summer in a row, Syria enjoyed a larger than usual influx of rich Gulf tourists who normally vacation in Lebanon. Also, as a result of the conflict, all of Damascus,s best hotels and tourist facilities were packed for most of the summer with wealthy Lebanese who usually avoid Syria because of its anemic service sector. As the tourist season has slowed in the last few weeks and upward pressure has built on the Syrian Pound (SYP),Syrian construction workers are reportedly flowing back into Lebanon, generating much needed hard currency which slackens the pressure on the SARG,s hard currency reserves. Balancing these positives, the much hyped Gulf investments of last year have been slow to materialize and are now showing the first signs of possible withdrawal, in part, in reaction to President Asad,s strident August 15 speech, parts of which were perceived to be directed at Saudi Arabia, and the SARG,s expanding collaboration with Iran. End summary. ¶2. (U) Though Syria,s economy remains vulnerable to external shocks (ref A),Syria seems to be the largest economic winner following last month,s conflict in Lebanon. Though estimates of Lebanese refugees last month reached as high as 200,000 in Syria, the cost of hosting them was born overwhelmingly by international donors and the Syrian private sector. At the same time, Syria benefited from large numbers of upper class Lebanese who arrived with hard currency. While here, the Lebanese consumption patterns were much more conspicuous than their Syrian counterparts and therefore positively impacted sales rates in Damascus and on the coast. ¶3. (U) Added to this, contacts in Syria,s tourist sector have commented to us on the increase in both the number and the spending of Gulf tourists this summer. Syria normally attracts the low-end of the Gulf tourist market, but with the conflict in Lebanon occurring in the middle of the season, more tourists from the higher-end diverted to Syria. ¶4. (U) The Gulf tourist season has largely ended now, but with reconstruction efforts beginning in Lebanon, we have been receiving increasing reports of long queues at the border as Syrian workers head back to Lebanon. These workers have historically been an important stabilizing force for the beleagured Syrian Pound (SYP) as they seek to exchange their salaries for SYP to repatriate to families in Syria. ¶5. (C) All trends are not positive however. The much hyped FDI from the Gulf, which helped to restore shaken confidence in the Syrian economy last year following the SYP,s dramatic devaluation (ref B),is showing signs of retreat. For weeks following President Asad,s strident August 15 speech, in which he alluded to other Arab leaders as being &half-men,8 Damascus has been full of rumors of Saudis deciding to take their money elsewhere. Though this does not seem to jibe with groups like Bin Laden, which continues to pursue expanding its business presence here, consultants and others who make a living from Gulf investors have reported a clear &cooling8 of interest that began in July with the hostilities in Lebanon. ¶6. (C) Comment. With its glacial pace of reform and its high-level corruption, the SARG continues to be its own worst economic enemy. Nevertheless, the conflict in Lebanon shows how Syria can enjoy relative economic stability despite the SARG. Looking forward, a potential withdrawal of Gulf FDI would be harmful, but most Syrians are doubtful that will happen, as they believe the Gulf investors have a more long-term investment strategy in Syria. Still, the Syrian economy remains weak and vulnerable to external shocks, such as any significant drop in international oil prices or the loss of new Gulf investment. CORBIN