Syrian President Bashar al-Assad heads a cabinet meeting, in Damascus, Syria

Report: Syrian government manipulates exchange rates to pocket aid money

The Syrian government has found ways to use currency manipulation to circumvent Western sanctions and siphon off millions of dollars from international aid to the country. Karam Shaar, co-author of a new report by the Center for Strategic and International Studies, spoke with The World's host Carol Hills about the situation.

The World

Since the start of the Syrian uprising a decade ago, much of the country has been left in shambles. Poverty, hunger and even homelessness are common. It's left Syria heavily dependent on international aid.

Now, a new report by a consortium of think tanks says the cash-strapped regime of President Bashar al-Assad has siphoned off millions of those aid dollars with the help of a creative exchange rate.

Related: Syrian refugees and migrants in Turkey face a difficult decision to return home

The currency manipulation allows the Damascus government to circumvent sanctions enforced by Western countries that hold it responsible for most of the atrocities of the Syrian war.

The Syrian pound has been hit hard by war, corruption, Western sanctions and, more recently, a financial and economic collapse in neighboring Lebanon.

Related: A decade of war has devastated Syria's health care system

Karam Shaar, one of the authors of the new report by Center for Strategic and International Studies, spoke about the situation with The World's host Carol Hills from New Zealand.

Carol Hills: Karam, for starters, can you explain how dependent the Syrian government is on aid money at this point?
Karam Shaar: Currently, more than 90% of the population live below the poverty line, according to a survey we conducted at the Operations and Policy Center nine months ago. More than 60% of Damascenes actually would like to leave the country if they have the option. So, the situation is actually very, very difficult there and people rely heavily on aid.
Damascenes, of course, are people who live in Damascus. Besides the United Nations, who exactly are the donors here? Are we talking about governments or nongovernmental organizations or just the UN?
Unfortunately, we don't have exact numbers. Only the UN makes it clear as to how much exactly they're receiving for Syria. But other organizations, which tend to be mostly international NGOs, also receive money on their own, usually by donations from the public. And then they spend that money in Syria.
How exactly is the Syrian government turning millions of dollars of aid money into a cash supply for itself?
So, the United Nations has to take formal channels when they're transferring money to Syria, which means that they have to play by the rules set by the central bank. Now, the Central Bank of Syria is basically an integral part of the Syrian regime. They benefit when they exchange the money into Syrian pounds. They have to accept an exchange rate that is actually lower than that prevailing in the black market. And so, currently, the rate that they have to accept is $2,500 Syrian pounds, roughly, while the rate prevailing in the black market is actually $3,500. And so, that $1,000 is is lost aid for UN agencies.
So, are we assuming that the Syrian government then goes out and exchanges the rest in the black market to get this extra amount? How do they get this extra amount to pocket themselves?
The United Nations agencies, when they want to send money to Syria, they deal with private banks. So, it's the private bank [that] has to charge UN agencies a low exchange rate that is set by the central bank. So, the Syrian central bank imposes on private banks to sell exactly 50% of the US dollars that they have in their accounts, the US dollars they obtained from humanitarian agencies and the UN. Once that 50% of US dollars ends up in the central bank, the central bank can use it at will.
Does the UN know this? Are they aware of this creative exchange rate that is basically allowing the Syrian government to pocket money?
They've always been familiar with the fact that a rate that is lower than that prevailing in the black market is imposed on them, and they have actually tried to negotiate a better rate previously, and they succeeded. But that still left a gap of like 30% with the black market. So, it's still not a fair rate, but they did push for it. I think they can do better if they have the support of donor governments. If donor governments stand behind them and say, "No, we're not sending you money, we're sending money to the people; you made their lives miserable."
What about donors? I mean, do they stop giving money to Syria until this is ironed out? Or does that just further hurt the Syrian people?
Unfortunately, I don't think this is an option, and change is likely to be very, very slow for a good reason. You can't go in and stop ongoing contracts. You can't go and cut cash handouts without coming up with a proper alternative.
Is this a problem in other countries that the UN provides aid for?
You can look actually at neighboring Lebanon. They have a similar situation. So, the central bank also tries to do the same thing: take advantage of the difference between black market and official exchange rates. However, the situation in both countries is completely different. So, for Lebanon, you have Western countries trying to actually pull the country together and prevent it from trouble. This is not the case in Syria. In Syria, you have Western governments trying to put pressure on Damascus to give political concessions.

This interview has been lightly edited and condensed for clarity.AP contributed to this report.

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