Syria's economic dilemma.

Author:Kiernan, Peter
Position:Drastic changes needed if Syria is to achieve economic transformation

In response to declining oil prices and reserves, indebtedness and slower rates of economic growth, the Syrian government is tentatively embracing economic reforms. However, unlike some other Arab states, the country is unlikely to undergo a rapid transformation towards a market oriented economy, for fear of risking political and social instability, which the regime of Hafez Al-Assad wants to avoid at all costs.

Syria experienced rapid economic growth in the early and mid nineties, with the economy growing by approximately seven per cent per year on average between 1990 and 1995. More recently, these growth rates have slowed, causing concern amongst some analysts about the country's future if policy changes are not made.

The rapid growth in previous years was influenced by the passage of Investment Law No. 10 in 1991, which encouraged foreign and Syrian private investment through a combination of tax and customs exemptions, the right to repatriate profits and relaxation of foreign exchange controls.

As a result, the private sector took a larger share of Syria's state controlled economy, and according to The Economist, $8 billion of foreign and expatriate funds flooded in. Syria was also helped by President Assad's pragmatic decision to support the Allies in the Gulf War, which was rewarded with aid and work opportunities for Syrian nationals in the Gulf states and political approval from the West. This decision enabled Syria to avoid the fallout from the collapse of the USSR, which had been providing aid to the Syrians throughout the 1980s.

Recent data show that the economic benefits from these and other factors (such as increased oil production and agricultural exports) have ground to a halt and that the country faces a new set of problems. The Economist Intelligence Unit (EIU) has revealed that GDP growth fell sharply from 6.7 per cent in 1995 to 2.2 per cent in 1996. It is also estimated that growth fell to only 0.5 per cent in 1997, and was negative 1.5 per cent in 1998. The EIU forecasts that the economy is unlikely to pick up significantly until after 2000 at the earliest, posing significant problems for the country's economic planners.

While other Arab states such as Jordan, Egypt, Tunisia and Morocco have decided to move rapidly towards emerging market status, Syria is still playing its cards close to its chest. This reflects the government's fear of resistance to the pains of economic transition that may give outside observers the...

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