SYRIA:Falling oil revenues forced Syria to make economic reforms, writes MICHAEL JANSENin Damascus
SYRIA HAS made great strides toward economic liberalisation over the past five years but progress is being hampered by domestic obstacles and external challenges. Dr Abdullah Dardari, deputy prime minister for economic affairs, describes his country's objective as a "social-market economy", a system which allows the play of market forces but also provides healthcare, education, and subsidies on basic commodities.
"Equity is as important as growth. If I am asked to sacrifice one, I prefer lower growth in order to ensure more equity."
Furthermore, "Syria is making market reforms without sacrificing nationalist positions. It is wrong to equate a market economy with pro-western [ political] stands."
Dr Dardari is the London-trained architect of the reforms initiated by president Bashar al-Assad in 2000, soon after he succeeded his father as president of Syria. While reforms were drafted in the 1990s, they were not enacted due to resistance from the ruling Baath party and interests vested in the former centralised system.
But Syria could not afford to postpone reforms any longer. "One of the main factors driving this rapid transformation," Dr Dardari observes, "is the fact that Syria's oil revenues are falling at a rate of 10 per cent per year [ due to dwindling reserves]. The reforms have softened what could have been a crash landing. "The major building blocks of a social-market economy have been put in place. Growth is at 6.6 per cent.
"Non-oil exports have quadrupled in the past five years and amount to $10 billion. Private and foreign investment was $6 billion in 2007 and private investment exceeded public investment."
Expatriates have repatriated $4 billion and are doing business in Syria. Gross domestic product is expected to rise from $980 to $1,500 per capita and unemployment is down to 8.1 per cent. Part of the reason for this is that 2.6 million Syrians work outside the country, 500,000 in Lebanon alone.
Domestic unemployment is highest among 18- to 24-year-olds, although this has dropped from 24 to 18 per cent over the past four years.
Reforms are moving forward rapidly and opening up the economy to foreign trade. Syria has free trade agreements with the Arabs and Turkey, and is negotiating with Iran and Malaysia.
But the EU association agreement, frozen when Damascus refused to meet EU conditions, has been bypassed because Syria has dismantled tariffs. Today they range from 8-10 per cent as compared with the previous 100-250 per cent.
Syria also unpegged the pound from the dollar and floated interest rates. This protected Syria from inflationary pressures due to the falling dollar, but inflation is still 11 per cent. This is due to in part to rising demand for energy and high fuel prices.
He plans to cut the subsidy on diesel and use savings to increase salaries of people with fixed incomes. "Not a [ Syrian] pound will go into the treasury," he asserts.
Rising food prices are squeezing Syrian consumers: "The cheap food age is over." This coincides with a 1 per cent fall in Syrian agricultural production due to drought, instead of the usual 4-5 per cent rise.
Agricultural reforms are required to preserve and expand this sector which employs 24 per cent of workers. "Our policy must ensure food security, provide good income for farmers, ensure reasonable prices for consumers, and expand export potential.
"Syria hosts 1.45 million Iraqis [ and] faces serious military and security risks" because of the unstable regional situation. Consequently, Dr Dardari says, "Syrians have a sense of malaise [ although] incomes are above the inflation level, and 60 per cent have benefited from the reforms. The losers are those with fixed incomes. Self-employed are doing well. Many people are moving into the private sector and becoming owners of businesses. Private consumption is booming. Disposable income exceeds inflation."
Dr Nabil Sukkar, head of the Syrian Consulting Bureau, an independent think-tank, says the reforms have produced more consumer spending and greater demand. But, he asks: "How do we handle the public sector? There is no privatisation and vested interests are determined to maintain the status quo."
While he believes the government has adroitly handled an increase in petrol prices, Dr Sukkar expresses concern the cut in the diesel subsidy will be inflationary. While "Dr Dardari is transparent, the press does not understand the reforms, it is difficult to educate the public, and positive results cannot be achieved quickly. There is no easy way to effect the transition."
Some blame Dr Dardari and the reforms for their economic woes. Even solid middle-class families are feeling the pinch. "We can no longer live as comfortably as we used to," complains the wife of a senior public servant.
A diplomat argues that many people feel the rich are getting richer while the middle class is losing ground, and the poor are suffering. Dr Dardari, he says, cannot overcome the combined resistance of entrenched interests and Baath party veterans who do not want to liberalise: "He is very exposed."
Meanwhile, white stone-built suburbs are mushrooming around Damascus. Malls proliferate. Black-cloaked women from the Gulf trail children from one expensive shop to another, pause for ice cream or coffee at atrium cafes, and amuse themselves at electronic game arcades.
Supermarkets are stocked with pricey western goods out of the reach of most Syrians, and dinner at the Italian restaurant at the Four Seasons Hotel, the most luxurious in town, is $90 a head, a month's wage for manual workers. "It's aways packed with Syrians," remarks the diplomat.