Report: Foreign aid lost in Syria exchange rate distortions
Syrian President Bashar Assad’s government has used distorted exchange rates to divert at least $100 million in international aid to its coffers in the past two years, according to new research.
The currency manipulation deprives Syrians, most of them impoverished after a decade of war, of much needed funds. It also allows the Damascus government to circumvent sanctions enforced by Western countries that hold it responsible for most of the war’s atrocities.
“Western countries, despite sanctioning Syrian President Bashar Assad, have become one of the regime’s largest sources of hard currency,” said the report published this week by the Center for Strategic and International Studies, a Washington-based research organization that focuses on international public policy issues.
“Assad does not merely profit from the crisis he has created,” the report added. “He has created a system that rewards him more the worse things get.”
On Friday, the United Nations acknowledged that exchange rate fluctuations have had “a relative impact” on the effectiveness of some of the U.N. programs, particularly since the second half of 2019 when the Syrian currency took a nosedive.
Francesco Galtieri, a senior Damascus-based U.N. official, said his office received the report on Thursday. “We are are carefully reviewing it, also to openly discuss it in the coming weeks with our donors, who are as concerned as we are that the impact of the assistance to the people in Syria is maximized,” Galtieri, team leader of the Resident and Humanitarian Coordinator for Syria, told The Associated Press in a written response.
The authors of the research published Wednesday said the amount of aid lost and diverted to Syrian government coffers as a result of the national currency fall is likely to be more than $100 million over the last two years. The data they used to calculate the amount was limited to U.N. procurement and does not include aid delivered through other international aid groups, salaries or cash assistance.
Sara Kayyali, Syria’s researcher with Human Rights Watch, called the findings shocking and said donors can no longer ignore the fact that they are effectively financing the Syrian government and its human rights abuses. She said U.N. procurement processes did not meet due diligence standards, from a human rights perspective.
The Syrian pound has been hit hard by war, corruption, Western sanctions and, more recently, a financial and economic collapse in neighboring Lebanon.
Syria’s Central Bank, which is sanctioned by the U.S. Treasury, obliges international aid agencies to use the official exchange rate — kept around 1,500 Syrian pounds to the dollar— while the black-market rate hovered around 4,000 pounds to the dollar. The Syrian government outlaws the use of unofficial currency exchange services. The official exchange rate has since been changed to around 2,500, leaving a gap of more than 30%, the report said.
That is an automatic loss of about two-thirds of aid funds in the exchange rate transaction, the report said.
For example in 2020, U.N. agencies converted a minimum of $113 million to procure commodities and services in Syrian pounds – which at the unfavorable exchange rate means $60 million in donors’ dollars were being diverted, according to the report, which reviewed data published by the U.N. The lost dollars in 2019 are estimated at $40 million, bringing the total estimate to $100 million.
Galtieri said most U.N. assistance is spent on procurement in international and regional markets. For aid spent in Syria, the U.N. and humanitarian partners have negotiated a “preferential” exchange rate up until 2021 to minimize the gap between the official and informal market rate and maintain value of assistance, he said. The preferential rate fluctuated with the informal market changes, Galtieri added.
The official exchange rate has been amended last year to 2,500 pounds to the dollar, but that still leaves a gap of over 30%.
“We continue to engage with the Central Bank on this issue of preferential rate to maintain the maximum impact of our assistance,” Galtieri said.
Syria’s war, which was sparked by largely peaceful protests in early 2011, has killed between 350,000 and 450,000 people, displaced half of the country’s pre-war population inside and outside Syria and left the infrastructure in ruins. Parts of the country remain under the control of opposition groups and armed rebels.
The war in Syria has been described as one of the modern history’s most brutal, rife with the use of indiscriminate barrel bombs, chemical weapons and torture. Aid and rights groups also complain that the Syrian government has long directed international aid to areas it considers loyal to it and used sieges around areas held by the opposition to deny them assistance.
With support from Russia and Iran, the tide of the war has turned in favor of Assad, who has been in office since 2000 and was re-elected for another four-year term this spring.
In a boon to Assad and following years of isolation, a number of Gulf countries have re-opened their embassies. Jordan has restored direct flights to Damascus and Egyptian gas will go through Syria, which will swap it for its own to send to Lebanon.
“As donor fatigue sets in and needs continue to rise in Syria, ensuring every dollar reaches those in need will be more critical than ever before,” the report said.