Syria likely to avoid regional unrest, so not to disturb economic recovery

Published April 20th, 2001 - 02:00 GMT

It is unlikely that Israel’s missile attack last week on a Syrian radar station caught Damascus completely by surprise. Ever since it withdrew its forces from Southern Lebanon, Israel has consistently stated that it holds both the governments of Lebanon and Syria responsible for reining in Hizbollah guerillas, who continue to target Israeli troops in the disputed Shebaa Farms area. 


Nonetheless, following the killing of an Israeli soldier last weekend, the Israelis finally delivered on their threat, destroying the Syrian radar and anti-aircraft defense system at Dhar al Baydar, 45 kilometers east of Beirut. 


In a typical Syrian fashion, Damascus’ response to the Israeli attack was slow in coming, measured and carefully calculated. According to the official SANA news agency, the harshest words were uttered in Moscow by Syrian Foreign Minister Faruq Al-Shara, where he delivered a message from Syrian President Bashar Al-Assad to the Russian president, Vladimir Putin. "Israel has made a huge mistake with this aggression and it will pay the price very dearly for it at the right moment," the foreign minister reportedly stated. 


The timing of the Israeli raid is unlikely to be to the Syrian president’s liking, who most probably would prefer to avoid a regional conflagration at this stage. For not only did it serve to highlight the increasingly controversial presence of 35,000 Syrian troops in Lebanon, but it came at a time when the long dormant Syrian economy is beginning to show signs of life. 


Following two years of recession, largely precipitated by low oil prices and a severe drought, Syria's real gross domestic product (GDP) grew by 1.5 percent this year, while consumer price inflation held steady at a marginal 0.5 percent. 


According to Al Baath newspaper, which is published by the country’s ruling Baath party, Syria registered a 465 percent increase in exports during 2000, with export volume rising from 38 billion Syrian pounds ($760 million) in 1999 to 216 billion Syrian pounds ($4.3 billion) in 2000. Fully 68 percent of Syrian exports were made up of crude oil. 


Real GDP growth is expected to reach 4.2 percent in 2001, and inflation is forecast to rise to 5.2 percent. But, while greatly improved, economic growth is still considered to be below the rate necessary to keep pace with Syria’s rapidly growing population, which is expanding by an average 2.5 percent per annum. Economists say that the Syrian government has to aim for an annual growth rate of about five percent in order to make significant economic progress.  


Syria's economy still faces a series of tough obstacles, including a preponderance of state-owned companies, low investment levels, fiscal imbalances, an overvalued currency at the fixed exchange rate, a $23-billion foreign debt, a hard currency shortage and rapid population growth rates. Unemployment is high as well. While the Syrian government reports a rate of below 10 percent, most economists believe that the real rate is in excess of 20 percent. 


When he entered office on June 10, 2000, Syrian President Bashar Al-Assad promised to undertake a variety of economic, administrative and political reforms, the aim of which was to transform Syria into a country that is able to cope with the rigors of the information age and the global economy. 


In the months that followed, the new president issued several decrees and laws aimed at establishing a Damascus Stock Exchange, legalizing private banks, attracting foreign investment and harmonizing Syria's various currency exchange rates.  


On March 29, the Syrian People's Assembly approved a law allowing private banks to operate in the country. The move follows the approval earlier that month by the assembly of a draft bill governing banking secrecy. 


The new banking law ended 40 years of state monopoly over banking and foreign exchange transactions and is considered the government's most significant economic reform initiative to date. The law specifies that foreign banks can own stakes of up to 49 percent in Syrian banks, with individual investors allowed to own as much as five percent of a bank's capital. Alternatively, a bank can be jointly owned by a private investor and the Syrian government, which would hold a maximum 25 percent of a bank's capital. The minimum capital requirement is $30 million. 


Another significant move was the government’s earlier announcement that it was scrapping the old four-tier currency exchange system. What this meant was that the Syrian pound, which had been convertible at controlled rates ranging from 11 to 46 to the US dollar, will now be trade at a single rate of 50 to the dollar. Automatically, the playing field was evened out, and the process of doing business with foreign currency made considerably simpler. This is not to say that Syria plans to make its currency freely convertible any time in the near future. The Syrian pound will continue to be pegged against the US dollar, with rates reflecting current rates in Jordan, Lebanon and other neighboring countries. 


Both the currency reform and private banking decree are designed to encourage trade and investment, and observers see them as a prelude to even more sweeping economic reforms. There are even hints that privatization is on the cards—a possibility that would have been almost unthinkable under the centralist regime of the president’s late father, Hafez Al-Assad. Significantly, the Syrian government recently revealed that state-owned companies were losing $1.6 billion a year, which is equivalent to about 10 percent of the country's GDP. 


A physician by training, Bashar Al-Assad is reportedly relying heavily on the advice he receives from an economic committee that he created, which includes 35 experts, former ministers, industrialists and politicians. It was this body that evidently advised him to work with the foreign business community. The committee reportedly has also estimated that an overhaul of state industry would require $5.6 billion over a period of 10 years. Others believe the figure to be in fact considerably higher. 


Whatever the amount, Syria’s ability to raise foreign capital is unlikely to be served by its becoming actively involved in a violent conflict with Israel. Should that occur, the new Syrian president may find himself having to put his ambitious reform plans on hold.  


Another factor is Syria’s relationship with the world’s most powerful economy, the United States. Damascus is keen to convince the Bush administration that it should stop regarding Syria as a state that aids and abets terrorism—a status that has carried a high economic price. To do that, it would almost certainly be forced to renounce its ties with Hizbollah, an organization that the United States holds responsible for the bombing of its Marine barracks in Beirut in 1983.  


That is not a simple prospect. Hizbollah’s primary backer, Iran, is an important ally of Syria’s in the region. Furthermore, the guerilla organization is popularly regarded as having forced the Israelis to withdraw from Southern Lebanon last year, and is also a strong supporter of a Syrian presence in Lebanon—where political pressure is building for Syria to remove its military forces. — (Albawaba-MEBG)

© 2001 Mena Report (

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