Saturday, Nov 19, 2011


 
   By Jay Solomon and Nour Malas 
   Of THE WALL STREET JOURNAL

The U.S. and its allies are shifting their efforts to constrict Syrian President Bashar al-Assad's few remaining financial lifelines, focusing on ties to Lebanon banks as they increasingly voice confidence that economic malaise ultimately will force the Assad regime from power.

Syria's economy will contract by as much as 8% this year, some independent economists project, due to cuts in oil exports and the collapse of the tourism industry on Assad's eight-month military crackdown on dissent.

Syrians say business in the capital, Damascus, is suffering and residents from the second-largest city, Aleppo, have reported shortages of gasoline, diesel and cooking gas.

Meanwhile, Syria's central bank has been forced to limit foreign-exchange transactions to protect the country's reserves, which U.S. officials believe have fallen below the $18 billion officially claimed by Damascus.

U.S. and European officials say they believe the Assad family's 40-year rule eventually will end, but worry about the rising death toll as the international community essentially waits for Damascus's funds to run dry.

"The regime will not survive, but the question is still the cost that will be paid" in terms of lives, said a senior European official working on Syria. "The process is still very slow and will take time to work out."

In the newest economic assault on the Assad regime, the U.S. Treasury Department and its partners in Europe and the Middle East, have targeted what they believe are its principal financing channels now that its links to Europe's banking centers have been cut off.

A principal focus in this campaign, according to these officials, is Lebanon. Syria controlled Beirut's political class and security apparatus until 2005, when a popular uprising forced Assad to recall Damascus's troops from the country. But Syria maintains close ties to Hezbollah, the political party and militia that gained control of the Lebanese government in January.

(This story and related background material will be available on The Wall Street Journal website, WSJ.com.)

This month the Treasury sent its assistant secretary focused on illicit financing, Daniel Glaser, to Beirut to meet monetary authorities. Glaser warned the Lebanese that their banks risked being blacklisted if they aid Syrian efforts to evade international sanctions, U.S. officials said. The U.S. Treasury has been focused on more than a dozen Lebanese banks with branches in Damascus, U.S. officials have said.

"We were clear that we're worried that Beirut could be a main conduit for the Syrians," said a U.S. official who was briefed on Glaser's trip.

Earlier this year, the Treasury Department sanctioned one Beirut institution, the Lebanese Canadian Bank, for allegedly helping Hezbollah move hundreds of millions of dollars through the international financial system. Hezbollah, which the U.S. designates as a terrorist organization, has denied the charges. The banks' owners at the time denied wrongdoing; it has since been sold.

U.S. officials said the action served as a warning to Lebanese authorities that its banking system remained at risk if it is seen aiding Hezbollah, Syria or Iran.

Glaser also visited Jordan and Russia during his trip, countries the U.S. believes could help Damascus conduct business. Syria also does business with Iran, but Iranian aid to Syria is limited by Tehran's own economic difficulties.

The squeeze on Syria also will tighten as a result of pledges by Turkey and the Arab League to impose their own sanctions on Damascus.

Meanwhile, U.S. and European officials are blacklisting an increasing number of businessmen, bankers and relatives of Assad who have allegedly helped the regime do business in recent years. This week, the EU named 18 people who are now barred from doing business in the EU.

Syrian officials have said in recent weeks that the government is facing serious financial challenges. But they have denied that Damascus is facing a balance-of-payments crisis.

They also said their government is working to find new buyers for Syrian oil exports to offset sales to Europe that have ended due to EU sanctions.

In the past, the Syrian government generated roughly one-quarter of its revenue from oil sales to Europe. These sales represent roughly one-third of Syria's total exports.

"We need to reorient our exports away from Europe and to the free markets of Asia," Syria's ambassador to the U.S., Imad Moustapha, said in an interview.

Still, analysts have said the Syrian government is in an increasing financial bind. "Syria's economy will contract substantially as a result of the EU oil sanctions, with a particularly severe recession if Syria is unable to find alternative buyers for its oil," said Oussama Kanaan, the International Monetary Fund's mission chief for Syria.

Syrians in Damascus describe setbacks to businesses, but otherwise paint a scene of normal daily life, with supermarkets stocked and cafes brimming with people in the evenings. Imports into Aleppo, however, depend on routes from Turkey and through Homs and Hama--two focal points of violence.

-By Jay Solomon and Nour Malas, The Wall Street Journal; jay.solomon@wsj.com and nour.malas@dowjones.com

(END) Dow Jones Newswires

19-11-11 0006GMT