Today's Major Market Move: Syrian Pound Weakens by 20% Year to Date

It's been a few months since we've last posted about Syria (see Jan 12, 2012 and Dec 10, 2011) and from both a political and economic perspective the situation has remained grim. Syrian leader Bashar al-Assad and his supporters continue to battle the rebels, or as he refers to them "armed terrorist groups", and there are reports of civilians being killed nearly every day. On the economic front, the Syrian Pound recently experienced another "devaluation event" and remains on the same weakening trend that started back in September.

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The most recent devaluation event occurred back on May 8th and has been the most severe so far, indicating that the situation is deteriorating at an increasing rate. Along with good ol' fashioned brute force, the government is also attempting to suppress the rebellion by bribing them with subsidies on energy and food. From Reuters via the Republic: 

Plans to gradually remove government subsidies on items such as petrol and electricity, announced before the uprising began in a bid to ease pressure on government finances, are now being reversed.

"We have reduced prices in our outlets between 15 to 25 percent in line with our policy of supplying basic items especially foodstuffs," said Ahmad Ismail al-Kishek, manager of a state-owned supermarket in Reef al-Sham area, a rural area on the outskirts of the capital.

Subsidies will account for at least 30 percent of the record $27 billion the government plans to spend this year, according to its 2012 budget.

Economists and bankers say the government is drawing on its foreign reserves and printing money to finance a budget deficit, which is officially projected to rise sharply to around $6.7 billion this year, due to falling tax and customs revenues and the cost of subsidizing energy.

Inflation now stands at around 30 percent, economists say.

The problem with the current approach is that the funding of the subsidies by drawing down foreign reserves and money printing reduces the purchasing power of consumers. This in turn increases the need for subsidies and round and round we go.