From Father to Son: Ruling the Syrian State

            Those who were hoping for dramatic economic reform in Syria's predominantly state-controlled and centralized economy were to be disappointed.  The 2006 report from the International Monetary Fund (IMF) characterized it as a "stable but stagnant economy."^[37]  Dr. Nabil Sukkar, one of Syria's leading economists and a former World Bank economist explained that the leadership in Damascus was "afraid to take the plunge" and Syria's introduction into the global economy would mean that the ruling elite "could loosen its grip on power and threaten its privileges."^[38]  After 50 years of Ba'th Party rule, the Syrian economy has remained inefficient, old-fashioned, and heavily regulated, with large-scale corruption at the highest levels of government.  The three revenue streams that Syria relies on are oil production, taxes from government services, and the government-owned industrial companies, which are widely politicized, greatly inefficient, and often loose money.  The only exceptions are the three monopolies: tobacco, telecommunications, and banking.

            The IMF report also criticized Syria as having one of "the most restrictive trade regimes" with various prohibitions and extensive licensing requirements.  The banking system suffered from "financial repression" and state banks suffered from "inappropriate accounting, loan classification and provisional rules, collateral appraisal, and the continuous rescheduling of non-performing loans."^[39]

            When Bashar came to power, he promised to introduce economic reforms such as liberalizing the economy, opening the market to foreign investments, and licensing foreign banks to operate in Syria.  This would be followed by political reform.  Yet, the Annual Index of Economic Freedom categorized Syria as "repressed" in 2007 with a rating of 145 out of 157 countries.  In the Middle East, Syria is ranked 15th out of 17 ranked countries with only Iran and Libya faring worse.^[40]  Under the weight of its own repressive practices and its adventures outside the country, "the Syrian regime has become stultified, frozen in time, and incapable of change."^[41]

            A new banking law (Law 8) was enacted in April 2001 allowing the establishment of private banks.  The first bank, the Bank of Syria and Overseas, opened for business in 2004, becoming the first private bank since they were nationalized after the 1963 Ba'th coup.  However, the law also limits foreign ownership to 49 percent, which means any foreign bank in Syria must operate under Syrian standards and conditions, not subject to control by their overseas headquarters.^[42]  The old guard in the Ba'th Party has yet to accept the idea of private banks.  Nevertheless, most Syrians did not have a need for banks - and do not use credit cards or checks - and most citizens who actually managed to save money generally preferred to convert it to foreign currency and if possible, smuggle it out of the country and deposit it abroad.  According to Syrian law (Law 24), holding or trading in foreign currency stipulates severe punishments.

            Most of the Syrian workforce lives from hand to mouth.  On the other hand, employment is generally permanent, with no danger of dismissal and with flexible and convenient work conditions.  Commissions and bribes a commonplace in all levels of the bureaucracy.  One prominent example was the sale of Airbus aircraft to Syria during the 1990s.  Syria purchased six aircraft at a cost of some $250 million.  It later emerged that highly placed Syrian officials had inflated the price to $374 million, which enabled quite a commission.  Deputy Prime Minister Yasin was known to skim a 5 percent commission from every transaction under his control.^[43]

            While the regime allocated significant resources in the early 1990s to improving the standard of living of the population, this investment was dissipated by the huge population increase.  The accelerated urbanization also proved to be a challenge.^[44]  A 2002 study found that the population of Damascus was 5.5 million, compared to 528,862 in 1960.  3.9 million migrated from rural areas during the 80s and 90s.  Another 1.1 million entered the city daily for work.  Housing density in poorer neighborhoods reached 70,000 per kilometer, with families living 10-12 people per dwelling, or three to four people per room.^[45]

            All economic issues were exacerbated by Syria's international isolation.  When the United States toppled Iraq, the illegal oil revenues Syria gained by smuggling Iraqi oil out of the country dried up.  The American economic sanctions on Syria from May 2004  and Syria's eviction from Lebanon in April 2005 also contributed to their growing economic problems.