Economy

Finance Minister Mohammad Hussein announced that Syria’s strength stemmed from “nutrition security,” boasting that Damascus is self-sufficient, and imports neither wheat nor flour. He added in a press conference that the government is not going to impose new taxes or tariffs, except for the Added-Value Tax, which will go into effect by early 2009. He pointed out that revenue from taxes had risen from 49.5 billion SP in 1990 to 174 billion SP in 2000. That number reached an impressive 309 billion SP in 2007. The public sector’s contribution to tax revenue was 38%, with the private sector bringing 62%. The private sector, he added, contributes up to 65% of Gross National Product (GNP) while the public sector provides 35%. Tax revenue accounted for 4% of GNP, he added, and 600 billion SP were being spent on imported solar fuel. Revenue from oil, said the Minister, had once accounted for 50% of the state treasury (more than $1 billion in reserves). That has now been reduced to 7% of the GNP and no more than 20% of the treasury. The best option to finance the budget deficit (expected this year to reach 9.8%) is to resort to using government bonds in financing investment, or to increase the estimated tax returns from 4.09% to 4.30%. The Minister said that the price of one liter of solar fuel was more than 50 SP ($1.0) and that the government had fixed its price at 9 SP (subsidized for households) and 7 SP for bread production. For all other uses of solar, known as “free pricing,” the cost of one liter was now 25 SP. Meaning, the government was still subsidizing both the household solar fuel and “free pricing” fuel, simply not at the previous levels. Lifting subsidy of solar fuel, the Minister noted, was needed because revenue was shrinking, and the price of oil was increasing.

After debate that lasted for more than a year, the Syrian government finally decided to raise the price of solar fuel (mazout), a commodity long subsidized by the state, by a staggering 350%. The origins of this law date back to 2003, when Abdullah Dardari (then a government outsider) became head of the State Planning Commission. At the time, the price of oil hovered below $30 USD/barrel and the Syrian economy was suffering from corruption, mismanagement, and confusion of the Syrian mindset, resulting from collapse of the former Soviet Union. All of that was topped with vulnerability of Syrian economic ethics, which had been imported—among other things—from the Cold War Era. Dardari came to change all that, carrying a proposal to stop subsidizing fuel-related products, to relieve the drain on the Syrian treasury.  

I recall a conversation between the Syrian minister of transportation and myself back in 1997. I had asked if it were feasible to privatize Syrian Airlines. The answer was an emphatic, “What are you talking about? Have you lost your mind?” Back then, privatizing was taboo in Syria. Today, more than 10-years later, it’s time to break that taboo. The current economic reforms and the fast-growing aviation market of the Middle East make it a must for Syrian Airlines to move forward. The company is now cornered between developing markets, US sanctions, and the heavy-handed Syrian legislation, making it very difficult to cope with market change.

Earlier this year, the Central Bank of Syria announced that it would cease to peg the Syrian Pound to the US Dollar. Instead, it would peg the national currency to Special Drawing Rights (SDR), which is the accounting currency of the International Monetary Fund (IMF). The SDR is an artificial «basket» currency used by the IMF for internal accounting purposes. SDR was basically created to replace gold in large international transactions. Initially, the value of the SDR was defined in terms of one US-$, which in turn was defined in terms of an ounce of gold. Since July 1974, determination of the SDR has been based on a basket of major currencies (namely four since 1981), being: the U.S. dollar, Euro, Japanese Yen, and British Pound Sterling. Initially, the basket had been composed of 16 different currencies. Every five years the IMF determines which five currencies will enter the basket, and what weight will be applied to each currency. The exchange rates used by the IMF to calculate the official SDR are the noon rates at the London Foreign Exchange Market. The Syrian decision comes after decades of informal and de facto pegging of the Syrian Pound to the US Dollar. Other Arab states, like Kuwait, have already taken similar measures. The move is believed to be a step in the right direction, aligned with other measures aimed at controlling and managing the foreign exchange market. The step is expected to lead to more stability in the value of the Syrian Pound against other currencies and better reflect the external trade of the country. It will protect the Syrian Pound from the volatility of the US currency, which is often due to international political and economic developments. The step will also lead to more independence in the monetary policy of Syria. Many also believe that the inflation rate in Syria, which is running at two digits, is partially due to the continuous depreciation of the value of the US currency against major international currencies.

 

The International Monetary Fund IMF published its report on Syria in may 2007, the report is evidence that the economic legislation in Syria, and the reform process, are on the right track and are moving the country forward. The report describes the preliminary findings of IMF staff at the conclusion of certain missions, undertaken usually as part regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement.

Our sister magazine alIqtissad conduct-ed an interview with Amer Lutfi, the Minister of Economy, about the future of Syria’s relationship with the World Trade Organization (WTO) and its pending As-sociation Agreement with the EU. Born in the city of Homs in 1956, Lutfi obtained his PhD in economics from the University of Brussels and returned to teach at the Faculty of Economics at Aleppo University. He has authored many articles and books about economic and financial development and is a member of the ruling Baath Party.

 

In the 1980s and early 1990s, the US dollar, along with America’s monetary policy, worked as an automatic stabilizer for the global economy. One good example was when the Asian crisis took place in 1998. Back then, the Federal cut short-term interest rates in the US, and aggressively injected liquidity into the global inancial markets. The impact was very positive as liquidity was restored and the cost of inancing for countries like South Korea, Taiwan, Thailand, Malaysia, and Indonesia dropped back to normal levels, which in turn, restored stability to their economies.

 

The assessment of Abdullah Dardari, the Deputy Prime Minister for Economic Affairs, along with oficial facts and igures, all conirm one thing: there are indeed many “challenges” facing Syria. If neglected or not dealt with in an urgent and comprehensive manner, these “challenges” will become serious threats