Since late 80s and until last summer, the Syrian pound rate has been relatively stable against the hard currencies, mainly the US dollar, thus ranging between 48 and 53 pounds per one dollar. However, since last April, it has declined against the US and other basic currencies. But during the past few weeks, it has peaked - with 60 Syrian pounds totaling one dollar early December. While the pound rate has fallen, the prices of many consumer goods, especially the imported ones, have, by contrast, mounted in the Syrian market. This trend will affect in particular the limited-income groups already saddled with fears that international economic sanctions may slap Syria during the next period.

As a matter of fact, the Syrian pound rate has fallen amid the accusations leveled by the International Investigation Commission into the assassination of the former Lebanese Prime Minister, Rafik Hariri. According to these accusations, Syrian security officials have apparently played a major role in preparing and plotting this attack. As the International Security Council has promulgated, two months ago, a Resolution urging Damascus to cooperate fully with the Commission in an attempt to interview and punish the accused, serious fears have been sparkled by the looming international economic sanctions. These fears were then fomented when the aforementioned Resolution has indirectly implied that such sanctions may be imposed if Syria does not cooperate fully and unconditionally. Hence, the confidence in the Syrian pound has dented, thus prompting its owners to sell it and buy other stable currencies, mainly the US dollar. Even worse, Syrian officials have made contradictory declarations on the future of their currency. For instance, as many have stated, the Syrian Central Bank has enough monetary reserves in hard currencies, which will help it preserve the pound's stability. However, this Bank has not intervened to this end until mid-last month though the pound rate against the dollar has fallen by then from 53 to 60. Besides, other confusing declarations have focused on the expected liberalization of the Syrian currency. Yet, officials have soon denied these statements claiming that the intended gradual liberalization takes many years.

In truth, the Syrian pound is now stable thanks to many factors, mainly the reserves in hard currencies. Currently amounting to $18 billion, these reserves can finance the Syrian imports for more than two years and can be partly used to inject dollars in the market in order to boost the dollar supply and ease pressures on the Syrian currency.

However, the problem still lies in the limited powers entrusted to the Syrian Central Bank. Hindered by complex bureaucratic procedures, the latter must often comply with the orders of high political authorities. Consequently, its capacity and flexibility to take the adequate decision in due time are hampered. So, if the situation does not change, the dollar is expected to reach economically unjustifiable rates in the foreseeable future.

In this regard surges another problem: few are the Syrian bank cadres capable of using the financial and monetary tools to enhance the confidence in the Syrian national currency and preserve its stability within a plan to liberalize the Syrian pound, like the Egyptian pound during the past few years. These tools comprise for instance imposing flexible interest rates, issuing attractive certificates of deposits, and meeting import needs. Then authorities can curb the impact of the black market and speculators in the local and neighboring markets, mainly the Lebanese one.

In addition, the rate of a particular currency is undoubtedly linked to the psychological factors the general political situation reflects. Since the latter is unstable and is expected to alarm Syria to a large extent, at least during the next months, the Syrian pound rate will keep on fluctuating. As for the Syrian monetary institutions, they cannot but maintain the currency's relative stability with an utmost 5% fluctuation rate. In other words, they must intervene through well-known monetary policy tools, mainly interests, bonds, and purchase and sale transactions to control the quantity of currency supplied in the market. However, for the Syrian Central Bank to adopt these means successfully, it must not only be vested with sufficient powers, like the Lebanese Central Bank for instance, but it will also need in the foreseeable future adequate reserves in hard currencies. As we all know, this reserve is now mainly constituted of oil surpluses and remittances, i.e. two basic sources affected by international circumstances, especially oil prices. For this reason, the capacity of the Syrian economy to provide alternative sources must be reinforced. In other words, efforts must be stepped up to develop the Syrian exports and attract foreign investments, mainly the expatriate, Arab, and Asian ones.

Indeed, Syria needs to focus on such investments, for it cannot rely now on foreign sources in the light of the US, French, and British campaign to build up international pressures on it. In all cases, the capacity of the Syrian monetary authorities to keep pound rates stable eventually depends on the period during which Syria will come under such pressures. The longer this period, the weaker Syria's capacity to maintain such stability. For the Syrian economy largely relies on its relations with the European Union (EU). As proof, two-thirds of Syria's trade is conducted with European countries, notably Italy, France, and Germany.

* Mr. Ibrahim is an economic expert in Berlin.