Reform planned at the right pace

Syrian officials and businessmen understand the need for economic restructuring to take advantage of regional and global opportunities. They are determined, though, to undertake it at their own pace and in ways that do not undermine social cohesion.

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Bashar Al-Assad

Hafez Al-Assad, Syria's president for 30 years, died more than a year ago but he is still held in reverence by Syrians. His picture is displayed in virtually every building and he is recognized as the man who restored political stability, pride and national identity to a republic that in the 1960s was in danger of losing all three.
When Assad seized power in November 1970 it was after 24 years of independence that had been punctuated by coups and other threats to internal stability. Between 1958 and 1961 Syria had even seemed prepared to relinquish national sovereignty, joining forces with Egypt to form the United Arab Republic but hastily withdrawing when it emerged that Cairo would dominate the federation. With 16 changes of regime between 1943 and 1970, Assad's preoccupation with restoration of internal stability rather than economic management or reform is understandable.
Assad's economic achievements were, however, far from trivial. His plan for recovery and extensive land reform programme initiated in the 1970s fostered social equality, and his correctionist movement in that period helped integrate Syria into the global economy. Syria's version of perestroika was given added credibility in 1991 with the passage of a law providing incentives for international and local private-sector investors.
This initiative, twinned with other external developments, ushered in a new phase of economic pluralism in Syria, with the private sector encouraged to develop alongside state-owned enterprises. "By the beginning of the 1990s," says a British embassy report, "the economy was on its way to recovery: between 1988 and 1994, oil production doubled and more plentiful rains greatly benefited local farmers. Syria's part in the anti-Iraq coalition mended links with the Gulf. Aid from Saudi Arabia and Kuwait resumed at unprecedented levels." The result, according to figures published by the Syrian Consulting Bureau (SCB) is that GDP grew by about 6% a year between 1990 and 1995, compared with annual growth of 1.4% in the previous five years.

Since the accession to the presidency of Hafez Al-Assad's son, Bashar Al-Assad, there has been a renewed sense of urgency on economic reform. Bashar Al-Assad was quick to emphasize this. In his inaugural address to parliament on July 17 2000 - a week after his father's death - he outlined a programme of radical modernization and reform that was clearly welcomed by the international community, even though it may have been viewed with mistrust by some of the Syrian old guard anxious to maintain the status quo.
In fairness to the new government led by prime minister Mohamed Mustafa Mero, which took office in March 2000, before Bashar Al-Assad's accession, there had been clear indications that economic reform was gathering momentum with the amendment in May 2000 of Law 10 of 1991, which governs foreign investment. But in the second half of last year the new president embraced reform with a speed and vigour that surprised many internal and external analysts.
Important initiatives were quickly launched, such as an intensified clampdown on corruption, an area to which the new president had demonstrated his commitment well in advance of his father's death.
Last November, actions were allied with words when Syria held its first Arab Investment Conference for several decades in Damascus, a well-attended event that many saw as a concrete illustration of the new regime's commitment to reform. This month's Euromoney conference in London is a natural follow-on to the Damascus initiative of 2000, which would have introduced many prospective investors to the potential of Syria for the first time.
PepsiCo's breakthrough deal
Signs are emerging to suggest that Syria's message is filtering through to the international business community. The British Embassy in Damascus, for example, reports that Syrian-British trade was up by almost 30% in the first quarter of this year.
Another telling example of the new spirit of rapprochement - economic and political - emanating from Damascus was the news earlier this year that PepsiCo of the US is contemplating expanding into the Syrian market. This would be the first incursion into a sector that, like many others, has to date been monopolized by the state.
The way for expansion into Syria was opened in April when PepsiCo acquired a 34.5% holding in Beirut-based Société Moderne Libanaise pour le Commerce (SMLC), which has been the company's exclusive bottling and distributing company in Lebanon for the last 40 years.
There's no doubt about the commitment of the Syrian administration to long-term reform, but it is also clear that the government is reluctant to be hurried into a wholesale overhaul of economic policy.
It also refuses to bend the knee to prescriptions laid down by multilaterals such as the World Bank and the IMF, in part because it continues to resist what it interprets as outside interference in its internal management, and in part because it has studied reform programmes carried out elsewhere and is unimpressed by the results.
"The blueprint that is discussed time and time again in Syria is the experience of the former Soviet Union," says an economist, "and its reform programme is seen as a clear reference as to how not to do it. Syria has taken notice of the social costs of reform in the FSU and has concluded that to implement a similar programme in Syria would bring with it unacceptably high social costs in terms of unemployment and other upheavals."







Aleppo: firm foundations to launch broader reforms

Another reason why Syria refuses to be bullied into making precipitant changes is that there is little immediate economic compulsion to do so. Even enthusiastic supporters of reform, such as Rateb Al Shallah, president of the Federation of Syrian Chambers of Commerce, is quick to make this point. "The time element involved in reform is not that critical," he says. "The nice thing about Syria is that at a macroeconomic level we are still pretty comfortable. The external debt problems have been resolved, our balance of payments is positive and our foreign exchange reserves are at an all-time high. Additionally, our relations with our near neighbours have improved immensely in recent years, and not at the expense of our relations with other countries."
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Reform planned at the right pace

Syrian officials and businessmen understand the need for economic restructuring to take advantage of regional and global opportunities. They are determined, though, to undertake it at their own pace and in ways that do not undermine social cohesion.

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