Limited Economic Liberalization in Syria
The connection between politics and economic liberalization with in the
Syrian Arab Republic serves as an example of the entrenchment of a
patrimonial regime that is only just beginning to show any signs of
globalization. The transition of this nation to any form of
democratization will probably not come anytime in the near future. In
fact, the collapse of Russia and an economic recession seem to be the main
reasons why the Syrian economy has embarked on the path of limited
liberalization at all. Syria’s tenuous relation with Israel must also be
remembered when considering the situation, and the fact that it remains on
the United State’s list of countries which support terrorism. However,
Syria has come a long way from the Soviet-inspired centrally planned
economy. Under the Ba’athist regime the state gained control of all banks,
most trade and much of commerce, controlled agricultural cooperatives, and
possessed 80 percent of all industry by the mid-1960s. Drastic
restructuring of the banking system, the establishment of a stock market,
and continued and more vigorous privatization of the Syrian economic
landscape are all elements that need to be addressed if Syria is to truly
become a player in the global market economy. The Syrian regime has
initiated a program of limited and structured economic liberalization
(Infitah), but the goal of such measures remain the continuation of an
authoritarian monarchy which has held power for nearly thirty years.
Following the declaration of independence of April 17, 1946, Syria went
through a period of rapid economic development as well as political
upheaval. In the period following Syria’s independence, the political
scene was embroiled in a number of coups. A military coup in 1954
concluded with Arab nationalist and socialist elements attaining power. In
the aftermath of the Suez Crisis, Syria joined with Egypt in the creation
of the United Arab Republic. However, the UAR was not to last and Syria
regained its independence following another military coup in 1961 with the
formation of the Syrian Arab Republic. The newly formed government
suffered instability and finally concluded with the takeover of the
National Council of the Revolutionary Command in 1963. This takeover was
largely engineered by members of the Ba’ath Party. Coups continued in
Syrian politics until President Hafez al-Assad attained power in 1971.
Syria’s present political scene is marked by the continued rule of the
Ba’athist authoritarian regime under President Hafez al-Assad.
President Assad is a member of the Alami minority sect of Islam that
represents roughly 11 percent of Syria’s population, and is Syria’s
longest-lasting modern leader. He is currently in his fourth seven-year
term as President. The Presidential monarchy in Syria, similar to the
French etatist model, is vested with broad policy-making powers, and
controls the civil and military bureaucracies. The monarchy relies on oil
and state production rents to keep the bourgeoisie subservient and
dependent on the state through patronage. Moreover, the regime utilizes
public policy making to further its own interests over the other classes.
The resultant economic scene is plagued by corruption and tax evasion by
the private sector. Therefore, the monarchy must defend its public sector
to retain its revenues. President Assad’s policies regarding the economy
are aimed at limited economic liberalization for these very reasons.
Syria’s is a middle-income developing country whose economy is divided
between a large agricultural, industrial, and expanding energy sector.
Cotton production had been the main staple of the Syrian economy as a cash
crop since ancient times until the introduction of petroleum export.
Cotton continues to be an important component of the agricultural sector
along with other products such as tobacco, wheat, and fruits. Syria’s
geography limits agricultural production to approximately one-third of its
area. Agricultural production is largely financed by the Syrian
government. After redirecting its economic development priorities in 1989,
Syria has gone from a net importer of agricultural products to an exporter.
Syria’s oil resources are small in comparison to many of the other Arab
oil-producing countries, however; the petroleum industry provides
substantial revenues for the monarchy. In 1989, petroleum production
helped Syria achieve a trade surplus and accounts for three-quarters of the
country’s export income. An IMF estimate states that government oil
revenues accounted for 45 percent of total revenues in the period between
1996 and 1997. The industrial sector was nationalized along with the
banking and insurance sectors in the 1960’s. However, Syria’s industrial
sector has emerged from its past of complete public ownership to a present
composition of mainly public, some mixed, and growing private ownership.
The breakup of Russia and the decline of its economic power combined with
an economic downturn in Syria during the mid-1980’s led Syria’s leadership
to consider broader reaching economic adjustment.
In 1991, Law No. 10, the Investment Law, was introduced which signaled the
Syrian government’s intention to open up its market to private investment.
The Investment Law provided a number of incentives to attract foreign
investors. These incentives included tax exemptions, lessened restrictions
on imports of material needed for investment projects, and relaxation of
hard currency restrictions to facilitate capital transfers. The
Investment Law was meant to open new opportunity for foreign investment
within Syria and aid in the overall improvement of the economy. The actual
amounts of foreign direct investment inflows can be found in (FIG 1). The
data suggests just the opposite from the period 1991-1992. During this
period, inflows dropped from 62 million US$ to 18 million US$; however,
more recent data might show an increase. The calculation regarding how
open the economy is in terms of investment, annual total foreign direct
investment inflows per annual GNP, express a downward trend. The data is
lacking after 1992; therefore, the effects of the Investment Law are hidden
(FIG 2). Additional data may harbor the true results of the effects of
this law.
FIG. 2
SYRIAN ARAB REPUBLIC
(US$ million, unless otherwise indicated)
1970 1980 1988 1989 1990 1991 1992 1993 1994 1995
Gross national product (GNP) 2,138 13,074 10,138 9,130 11,522
11,955 12,340 12,729 14,117 15,810
Exports of goods & services (XGS) .. 3,341 2,397 4,358 5,460 4,917 4,999
5,240 5,649 6,329
of which workers remittances .. 774 360 430 385 350 550 426 370 400
Imports of goods & services (MGS) .. 4,610 3,084 3,358 3,786 4,452 5,257
5,793 7,079 6,406
International reserves (RES) 57 828 535 .. .. .. .. .. .. ..
Current account balance .. 251 -151 1,222 1,762 699 55 -493
-922 440
Source: World Development Indicators CD-ROM, World Bank, February 1997
Trade Openess: XGS+MGS/GNP 0.61 0.54 0.85 0.80 0.78 0.83 0.87 0.90 0.81
Investment Openess:FDI/GNP .0119 .0051 .0062 .00518 .00145
In addition, the economic recovery resulted from the recovery of the
agricultural sector after periods of drought and years of governmental
neglect, substantial increases in oil production, and access to aid from
the Gulf Arab states due to participation in the coalition against Iraq
during the Gulf War. The combination of these factors have dramatically
expanded Syria’s gross national product (GNP) and lead to an overall rise
in imports and exports (FIG 2 & 3). The amounts of export goods, services,
and income has more than doubled over the ten year period between 1985 and
1995. Similar findings can be seen for similar imports over the same
period except for the year 1985 when a greater than ordinary amount of
imports entered the Syrian economy.
Calculations regarding the how open the economy is to trade, total exports
plus total imports divided by the total GNP, show fluctuations reaching
both high and low points illustrating the effects of an economic recession
in the mid-1980s. When analyzing the 15 year period between 1980 and 1995,
a general and sustained rise results adding merit to the theory that even
the most minimal and limited of economic liberalizing measures can enhance
the economy.
FIG 3
(Millions of US dollars) BALANCE OF PAYMENTS
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
2,540.5 1,612.7 1,981.9 2,037.0 3,927.6 5,074.9 4,567.2 4,449.4 4,814.0
5,279.0 5,929.0 Exports of Goods, Services & Income
1,855.9 1,036.9 1,357.3 1,347.6 3,012.5 4,156.0 3,437.9 3,100.0 3,203.0
3,329.0 3,858.0 Merchandise, fob
655.6 566.2 600.0 667.0 893.4 873.6 1,064.6 1,280.6 1,531.0 1,847.0 1,966.0
Services
29.0 9.6 24.6 22.4 21.7 45.3 64.7 68.8 80.0 103.0 105.0 Income
5,059.2 3,198.8 3,374.3 3,083.7 3,357.8 3,785.8 4,452.3 5,257.4 5,793.0
7,079.0 6,406.0 Imports of Goods, Services & Income
3,945.7 2,363.2 2,225.8 1,986.3 1,820.6 2,062.4 2,354.0 2,941.0 3,476.0
4,604.0 4,001.0 Merchandise, fob
974.5 698.8 689.9 636.4 792.4 892.3 1,002.3 1,102.1 1,265.0 1,489.0 1,437.0
Services
139.0 136.8 458.6 461.0 744.8 831.1 1,096.0 1,214.3 1,052.0 986.0 968.0
Income
1,561.2 1,082.1 1,094.5 896.1 652.6 473.2 583.9 863.0 486.0 878.0 917.0
Net Current Transfers
349.6 323.0 334.0 360.0 430.0 385.0 350.0 550.0 426.0 359.0 385.0
Workers' Remittances
-957.5 -504.0 -297.9 -150.6 1,222.4 1,762.3 698.8 55.0 -493.0 -922.0 440.0
Current Account Balance
.. .. .. .. .. .. .. .. .. 102.0 20.0 Net Capital Account
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 .. .. .. Direct and Portfolio Investment
788.9 590.8 399.4 84.7 -1,708.3 -1,838.0 -510.8 -50.0 423.1 2,360.0 1,640.0
Other Net Investment
-17.0 -25.8 -22.7 33.9 419.9 111.8 -115.8 70.9 345.7 -768.0 -1,320.0 Net
Errors and Omissions
185.6 -61.0 -78.8 32.0 66.0 -36.1 -72.2 -75.9 -275.8 -772.0 -780.0
Reserves and Related Items
355.4 469.9 626.3 534.8 .. .. .. .. .. .. .. Gross International Reserves
Source: World Development Indicators CD-ROM, World Bank, February 1997
The domestic bourgeoisie found in Syria, composed largely of Sunni
businessmen, is in the process of reconstruction. The continued perception
for Sunni capitalists is that business success requires political
connections to Alawi political elite. Limited intermarriage between the
Alawi political elite and the Sunni business elite suggests a lack of
social trust. However, patronage still remain very much a part of the
Syrian business community. The cohabitation of the public and private
sectors through clientele networks remains a functional policy in Syria.
As Y. Sadowski states it,
"Corporate boards are supposed to pursue profits, not popularity, and
politicians are supposed to increase the public welfare, not their bank
accounts. Patronage tends to violate this separation: it is the most
‘economic’ of political relationships … It is the inequity not the
inefficiency of patronage that offends Syrians. If every one had equal
access to patronage few would complain … Syrians … believe that economic
activities require the support of state power and that economic and
political processes cannot be disentangled."
The private bourgeoisie is still politically weak and has not forged
alliances with other classes besides the workers and peasants. Therefore,
the private bourgeoisie is unable to pressure the monarchy for more
economic liberalization than the regime wishes. Overall, the bourgeoisie
is forced to accept the regime’s incremental liberalization strategies and
take advantage of what new opportunities there are. The labor sector of
the economy has gained increasing access to policy makers through the
Chambers of Commerce and of Industry, and the Committee for the Guidance of
Imports, Exports and Consumption. These Chambers lobby for the expansion
of liberalization measures; for example, a mixed sector bank to break the
state banking monopoly, and a legalized stock market.
The banking system in Syria is characterized by the fact that it is
completely state-owned. The Central Bank also functions directly under the
control of the monarchy. The result of this situation is that the banks
act as relays of the central treasury and there is no real banking, or
structural power of private capital. Any available investment capital is
kept out of the banking system and contributes to the informal economy, or
kept offshore, in Lebanon or elsewhere. The current banking system is
unable to adequately service investors leading local businessmen to divert
transactions. A further reason why the regime hopes to maintain tight
control over the banking system stems from the fear that freeing foreign
currency exchange rates could devalue the Syrian pound and cause price
increases. Therefore, the regime’s pursuits at controlling exchange rates
has deterred the possibility of private or joint venture banking. The
high concentration in state-banking, coupled with the fact that Syria lacks
a stock market, severely limits the further expansion of the Syrian economy
into the global market place. Rabet Shallah, president of the Damascus
Chamber of Commerce, illustrated how far the Syrian economy needs to
advance to provide small investors a share in the economy: "We (Syria) have
embarked on a development plan that is too big to be completed without a
stock exchange …. We have no doubt Syria cannot afford to have a completely
free market for banks, but within this there is a lot we can do."
Any consideration of the Syrian economy must also take into consideration
the question of peace and stability with its neighbor, Israel. Since the
defeat in the 1973 Yom Kippur War, Syria lost control of the Golan Heights.
In the aftermath, Syria began investing larger amounts of revenues in the
upgrade of its national security. The prospects for sustained peace could
mean greater prosperity for both regions, but the question of lost
territory still plays greatly on the minds of many Syrians, including
President Assad. He aptly summarizes his concerns in a famous statement
concerning the situation with Israel: "We are enemies who have been at war
for more than 40 years. We have martyrs and devastated property; our lands
are occupied, our people displaced."
The road to economic liberalization for Syria has some difficult obstacles
still to come. Without dramatic restructuring of the political
establishment and certain fundamental economic reforms, Syria will only
continue to advance at a sluggish rate. On the whole, Syria has made some
steps marking the beginnings of financial liberalization and globalization
measures. The Investment Law of 1991 was a limited attempt to gradually
open this economy to privatization. However, the authoritarian regime
embodied by patronage measures and insulation stands as a bulwark to the
freeing of the economy. Businessmen cite a number of other obstacles
including export taxes, a shortage of credit, the corrupt and sluggish
bureaucracy, and a law which can impose a 25-year prison sentence for the
wrongful possession of foreign currency (Foreign Currency Law No. 24).
Further, how can there be any economic reform when the central bank
functions as nothing more than a "cashier’s office."
When compared with other economies in the MENA region, Syria remains behind
many of the other countries economic liberalization measures. Examples
such as Turkey and Morocco are farther along this path. The fact that many
of the countries within the MENA region have a commercial banking structure
and stock markets express the fundamental differences between the
approaches to economic liberalization. The differences between political
structures and the approaches to liberalization could be defined as a form
of shock therapy versus extremely slow and limited change. When
considering the cases of Morocco and Syria, both establish or maintain
political structures and economic policies meant to prolong the authority
of its regime. Morocco utilized the ONA to gain a greater share in control
over the privatized banking system. Syria continues to utilize a
state-owned banking system. The Syrian case hinges on the establishment of
prolonged stability within the region whereas Morocco does not suffer from
the same difficulty. Comparatively, these two countries appear to lie at
opposite ends of the spectrum, one unwilling to institute drastic change
and the other quite willing to institute change as long as hegemony of the
regime can be continued.
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"There are going to be times when we can't wait for somebody. Now,
you're either on the bus or off the bus. If you're on the bus, and you get
left behind, then you'll find it again. If you're off the bus in the first
place - then it won't make a damn."
Ken Kesey
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James D. Lindley, Jr
MPAff Candidate - LBJ School of Public Affairs
MA Candidate - Center for Middle Eastern Studies
University of Texas at Austin