US embassy cable - 05DAMASCUS6280

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