By A CORRESPONDENT IN SYRIA

As the crisis in Syria continues, many observers are beginning to say that if the protesters cannot overthrow the regime, the economy will. With political uncertainty at a suffocating level, the Syrian pound has fallen against the U.S. dollar. As a result, Syrians are feverishly hauling their money out of banks — about 8% of all banks deposits have been withdrawn — and shifting it into more stable foreign currencies. GDP was predicted to grow at a steady 6% this year. Now, predictions are closer to a negative 3% contraction. "I think the crackdown on protesters will succeed in the next two months," a senior western diplomat in Syria says. "But in six months time, the economy will have taken such a battering that [President Bashar al-]Assad will have lost the support of the majority of Syrians."

The economy had been key to Assad's popular standing before the uprising. Portraying himself as a political and economic reformer, Syria's President spent the last five years moving away from the socialist, centrally planned economy that has failed Syrians. With a team of economic liberalizers, Assad began to open up the economy to the private sector, encourage free trade and reduce subsidies. Tourism started to boom and foreign investment began flooding in. Suddenly, middle-class Syrians were able to afford new cars and houses. Consumerism developed as cheap foreign products, like Chinese TVs and heaters, entered the market. The espresso-drinking urban business class grew.

Now, however, the pillars of the new Syria are collapsing. Today, people are not buying cars. Actually, nobody is spending at all in Syria. People are working fewer hours and there are widespread layoffs — some companies have stopped paying salaries. In three months, Syria's economy has gone from growth to slump even as the government is desperately trying to pay off its disobedient citizens with subsidies — money it does not have.
Tourism, which possibly accounted for up to 18% of the entire economy, was the first to go. A year ago, sandal-clad and camera-wielding hordes of European tourists would shuffle through the cobble-stoned souk of Old Damascus, who patronized the businesses of cocky young Syrians, many of whom speak five languages to cater to the flow of foreigners. Now the tourist touts sit on small plastic stools and drink sweet tea in their shops full of dusty carpets and silver trinkets. "The Old City is still safe, but it's empty," one shopkeeper said as he tried to sell a box of old coins from Syria's eastern deserts, a once-popular souvenir here.

Most travel insurance companies have blacklisted the country; and Middle East tour groups are now avoiding Syria altogether, even choosing to fly from Turkey to Jordan, rather than busing through the country as they used to do. The shopkeepers of Damascus say many tourist companies have closed and the boutique hotels of the capital and Aleppo, the country's largest city, are empty. "We will have to close soon," one said.

The next economic support to go will be foreign investment. With dwindling oil reserves, the Syrian government has been betting on foreign investment to pay for more than half of all government spending over the coming years. Would-be investors are now waiting to see if the situation stabilizes or, increasingly, are simply taking their money elsewhere. A Qatar-based company recently scrapped plans for a $900 million project to build power plants here. "The prospects do not look good at all," a leading Damascus economist said on condition of anonymity. "There is a deep sense that the crisis is ongoing and business is at a standstill."

Worst of all, according to many in the Syrian business community, the government has backtracked on its liberalizing reforms in a last-ditch attempt to mollify the protesters, who complain of unemployment, corruption, low wages and high prices. On Tuesday, the Treasury announced it would further subsidize gas oil by 25%, the latest in a string of government measures, including generous salary increases for public-sector workers and reintroducing subsidies on food and fuel prices. "It is not feasible for the government to adopt a socialist economy again. They simply don't have the money," the Damascus economist said. "All economic moves have been short term emergency measures, there has been no strategy."

Panicked by the protests, President Assad sacked his government in April in a move that one dissident in Damascus described as "a pretense to democracy." The dismissals included Deputy Prime Minister for Economic Affairs Abdullah al Dardari, the architect of the economic liberalization. Although Dardari's longer-term policies were not always popular among the poor, the English-speaking minister opened the economy to foreign trade and private banks brought credit into the country.

A European business analyst working in Syria says that while the unrest has hurt the economy, the government backtracking on economic policy could cripple Syria. "There is now an uncertainty over future policy. People want to know if they invest now they can be sure for 20 years," he says. Assad's emergency measures mean oil prices and inflation rates are now unpredictable. "When investors don't have certainty, because you just sacked all the economic reformers, they won't invest," he adds. The analyst says that it is possible there could be rolling blackouts in Syria as the government is unable to attract foreign investment for new electricity plants.

Unlike in Egypt, where the educated middle class used their knowledge of the Internet and the media to help oust President Hosni Mubarak, in Syria it is the poverty-stricken masses that have led the protests while the growing business classes have sat tight. Soon, however, many of Syria's business class — who are generally undecided on the anti-Assad demonstrations — will start to feel the pinch when they can't afford to send their kids to schools or pay for hospital bills. The Damascus economist says that would be the beginning of the end for Assad. He says: "The business community does business with [Assad] cronies in government. They are willing to take some losses, but at one point they will demand reform."