Yemen currency crash has ‘done more damage’ than war, experts say

Yemen currency crash has ‘done more damage’ than war, experts say
The impact of the currency depreciation on the Yemeni economy and the public is dramatic, experts and economists said. (AFP)
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Updated 24 July 2020

Yemen currency crash has ‘done more damage’ than war, experts say

Yemen currency crash has ‘done more damage’ than war, experts say
  • Riyal slump that has ‘made cost of staying alive far harder to afford’ caused by speculation, export disruption

AL-MUKALLA: The depreciation of the Yemeni currency has caused more damage to Yemenis than the raging conflict in the country, economists and locals have said.

The Yemeni riyal traded 752 against the US dollar on Thursday’s black market for the first time in two years, falling from 700 in recent weeks. The riyal was 623 at the beginning of the year before slowly falling to 680 over the following six months. In January 2015, the riyal was 215 to one dollar.

The impact of the currency depreciation on the Yemeni economy and the public is dramatic, experts and economists said.

“The direct violence of the war has affected some people in Yemen, but the fall of the currency affects everyone,” Spencer Osberg, chief editor at the Sanaa Center for Strategic Studies, told Arab News.

“Yemen imports the vast majority of what its people consume. The domestic currency losing value has an immediate inflationary impact, meaning the necessities of life become more expensive for everyone,” he added.

Yemen was plunged into war when Houthi rebels seized control of Sanaa and gained territory across the country in late 2014, triggering heavy fighting that ravaged vital institutions. After almost five years, the Yemeni government has liberated most of the country. The focus of the fighting has moved to rugged and uninhabited areas in northern Yemen.

The war has disrupted oil and gas exports, the primary source of hard currency for the country. The disruption is the main cause in the decline of the Yemeni currency.

“In a country where roughly half of the population was living below or near the poverty line even before the conflict when the currency was stable, the Yemeni riyal’s fall in value in recent years has made the cost of staying alive far harder to afford for millions more people,” Osberg said.

When the riyal began to fall, local authorities in several Yemeni provinces raised fuel prices. The price of food increased by 10 percent, triggering limited protests in government-controlled areas. Many local food wholesalers only accept the Saudi riyal or US dollar.

Mohammed Omer, who owns a small grocery in Al-Mukalla, told Arab News that he is forced to buy the Saudi riyal at an inflated price from local exchange companies in order to buy goods from wholesalers.

“I sometimes frantically move from one exchange company to another when the Saudi riyal is scarce,” he said, adding that he, like all local traders, raised the prices of goods to offset losses caused by the fluctuation of the currency.

Saleh Yaslem, a local journalist, said his landlord asked for rent in Saudi riyals. Yaslem is paying SR600 monthly for a new flat, compared with 50,000 Yemeni riyals (SR256) for his old flat last year.

“This is a big problem for Yemenis whose salaries are in the Yemeni riyal,” he told Arab News.

Economists said the scarcity of Yemen’s main sources of foreign currencies has also caused the depreciation.

“Remittances, international humanitarian aid and bilateral support from Saudi Arabia are all decreasing dramatically while the Yemeni government has been printing new riyals to cover its operating budget, largely to pay public sector salaries,” Osberg said, adding that high demand for hard currency from fuel and goods traders has also contributed to the problem.

Mustafa Nasr, director of the Economic Media Center, said the Yemeni government’s failure to secure a new central bank deposit from Saudi Arabia, the civil war, currency speculators and a surplus of Yemeni riyals are the main reasons behind the depreciation.

“The rapid slump in the riyal is a disastrous issue that reflects the instability in the country,” he said.

To curb depreciation, the government should reassert control of the market, inject more hard currencies into the market, convince donors to bail out the economy, and resume oil and gas exports, experts said.

“Find ways to supply the market with foreign currency. This would require the cooperation of international stakeholders however, such as donor countries and humanitarian organizations recommitting to aid financing in Yemen,” Osberg said. He advised the government to create a more stable and secure environment for the central bank in Aden to operate by ending tension with the separatist Southern Transitional Council (STC).

“Neither Saudi Arabia nor any other international donor is likely to give the central bank access to billions of dollars when its head office is surrounded by fighters and the government has lost Aden to the STC. The government badly needs to give stakeholders confidence that it can be responsible for any financial support it is given,” he added.

Will Turkey succeed with its new charm offensive?  

Will Turkey succeed with its new charm offensive?  
Updated 7 min 57 sec ago

Will Turkey succeed with its new charm offensive?  

Will Turkey succeed with its new charm offensive?  
  • Erdogan said that he expects to “turn a new page” in ties with Europe and “set a positive agenda” in 2021
  • Turkey also initiated the 61st round of exploratory talks with Greece on Jan. 25 to resolve longstanding conflicts

ANKARA: Turkish President Recep Tayyip Erdogan is downplaying Ankara’s tensions with a host of countries as he launches a charm offensive on a variety of fronts. 
Meeting with the ambassadors of EU member states in Ankara on Jan. 12, Erdogan said that he expects to “turn a new page” in ties with Europe and “set a positive agenda” in 2021. 
However, his comments came at the same time as Brussels draws up an expanded sanctions list targeting Turkish individuals over Ankara’s decision to drill for offshore natural gas near Cyprus in the eastern Mediterranean. The punitive measures are set to be announced in March. 
Turkey also initiated the 61st round of exploratory talks with Greece on Jan. 25 to resolve longstanding conflicts over energy rights and maritime boundaries that pushed both countries to the brink of war last year. 
Similarly, Turkish and French presidents, after trading barbs last year, especially over their divergent regional policies, recently exchanged letters in which they agreed to resume talks to improve ties. The two countries are working on a roadmap to normalize relations. 
Despite growing tensions last year over the drilling activities of the Oruc Reis research ship in contested waters off Greece, Erdogan also called for cooperation in the eastern Mediterranean rather than competition. 
Experts remain skeptical about the success of this diplomatic sea-change and the hidden motivations behind it. Whether these steps will lead to tangible gestures in the region and globally is still a matter of concern. 
Ian Lesser, vice president at the German Marshall Fund of the United States, believes Ankara is trying to modulate its foreign policy messaging, above all with the US and the EU. 
“Part of this is tactical, including the desire to forestall or limit future sanctions, and to offset the influence of more hawkish voices within the EU,” he told Arab News. 
According to Lesser, Ankara would prefer an agenda that is more German and less French in the coming months, and this will also be read closely by the new administration in Washington.  
“With the important exception of the eastern Mediterranean, the Trump administration was not overly concerned about Turkish-EU relations or the range of issues affecting these relations. The incoming Biden administration is likely to pay more attention to migration, human rights and media freedom, all issues on the EU agenda with Ankara,” he said. 
But according to Marc Pierini, a visiting academic at Carnegie Europe in Brussels and a former EU envoy to Turkey, “we have seen this movie before.” 
“When Turkey finds itself stuck with failed policy choices, it performs abrupt U-turns, this time on monetary policy, and relations with the US and the EU,” he told Arab News. 
In the meantime, Ankara hopes to rebuild its relations with Washington under Joe Biden, and failed to react harshly to the appointment of Brett McGurk, a staunch Turkey critic, as the National Security Council’s Middle East and North Africa coordinator. 
Pierini believes that such Turkish U-turns have zero credibility.  
“You can’t say that Turkey’s future is in Europe — only weeks after saying Germany was ‘Nazi’ and France needed to get rid of its mentally impaired president,” he said, referring to the feud between Erdogan and his French counterpart Emmanuel Macron last year when the Turkish leader advised Macron to have a mental health checkup over his comments on Islam. 
“While dismantling the rule of law week after week, Turkey’s leadership wants European leaders to believe that major governance reforms are around the corner and that its accession ambitions are alive,” Pierini said. 
“The same goes with NATO, at a time when Turkey has deliberately facilitated Russia’s strategic objectives against the Atlantic alliance,” he added. 
Ankara’s stubborn stance over the S-400 Russian air defense system remains a strong deterrent for any normalization with the US administration as the system is considered incompatible with the NATO version and could be used by Moscow to obtain classified details on the US F-35 jets. 
However, experts are divided about whether these efforts will prove successful.
Lesser believes that rhetoric does make a difference, and that the Turkey debate has become so critical on both sides of the Atlantic that leaders and observers are looking for concrete change on the S-400 issue and other fronts. 
“This will not be easy. There is probably a time-limited window for Ankara to demonstrate that there is substance behind these multiple signals of detente,” he said. 
For Pierini, to find a way out of these massive contradictions, EU leaders will have to strike a balance between their own credulity and the artificial narratives emanating from Ankara. 
“Before doing so, they will talk to the Biden administration,” he said. 
At the end of 2020, Erdogan also expressed a desire to mend ties with Israel amid speculation that both countries would reappoint ambassadors. 
Gallia Lindenstrauss, senior research fellow at the Institute for National Security Studies in Israel, said that the drivers behind Turkey’s overtures to Israel include: Preparations for the incoming US administration; tensions in the eastern Mediterranean, and the desire to drive a wedge between Israel, Cyprus and Greece; the Abraham accords and the end of the blockade on Qatar which requires Turkey to rethink its policies toward the Middle East; and the recent war between Armenia and Azerbaijan that reminded Ankara of the advantages of cooperating with Israel.
Although the return of diplomatic ties is a feasible aim, she doesn’t expect any change before the Israeli elections in March and the formation of a new government. 
“However, this will not fundamentally improve relations as there is deep suspicion between the two states,” Lindenstrauss told Arab News.
“Also Israel will likely make additional demands from Turkey to show that its overtures are sincere, such as Ankara halting Hamas military activity organized on its soil and directed against Israel and the West Bank, as well as more transparency about Turkey’s projects in East Jerusalem,” she added.