Syria's Economy Thrives, But Anomalies Remain

Western investors are cautious because liberalization has only been extended to part of the economy

FOR the first time in its 3,000-year history, Damascus is suffering from traffic jams.

It is not just because almost every major intersection in the city appears to be blocked at the moment by roadwork. Laborers are installing a new Kuwaiti-funded sewage system - a thank-you present for Syria's participation in the war against Iraq.

The crowded roads also reflect a new prosperity in the capital, three years into an economic liberalization program that has helped foster growth rates of more than 10 percent a year.

Though the government is upbeat about the program's direction and its results, foreign observers are more skeptical. ``I'm not sure how widely dispersed the new wealth is, how far down it goes,'' one Western diplomat says. ``There's a fear that they are simply solidifying the position of an elite crust.'' That elite, one European economic analyst says, is mainly involved in trade: ``The reforms are in foreign economic relations. They have not really touched the framework of their domestic economic system.''

The Syrian government's open-door policy has relaxed traditional state controls in a number of areas. Private entrepreneurs are now allowed to compete with public sector firms, the range of permitted imports has been widened, and foreign companies are being courted to invest in Syria. Since ``Law 10,'' designed to attract foreign investment, was passed 30 months ago, $3 billion worth of projects have been approved, according to official figures.

Most of that money has come from expatriate Syrians, neighboring Arab countries, or local businessmen beginning to bring home some of the estimated $60 billion they have illegally stored in foreign banks.

Though the Syrian autborities are generally ``very happy'' with the way Law 10 is working, says Mohammed Sarakiby, an official at the government's Investment Office, they are also clearly disappointed at the lack of Western response. No European or American firms have made any direct investment in Syria outside the oil sector, says Mr. Sarakiby, who hopes that ``maybe with time, participation will increase.''

It may, given Syria's unusually high growth rates, its natural resources, its strategic location, and its market of 15 million people. But several obstacles remain to be removed, foreign diplomats say, before Western investors flock to Damascus. Behind much of their uncertainty lies confusion over foreign currency laws. For although Law 10 allows foreign investors to work in foreign currencies, an older law making such activities illegal remains on the books.

``There's a sense of a sword of Damocles,'' one Western economic analyst says. ``That one day, if the government decided it didn't like you, it could always use the old law against you.''

At the same time, even after launching its reform program, ``the government still keeps a tremendous chokehold on industry,'' complains Afif Kaddoura, an American who runs the local office of Unocal, an oil company.

``In theory it's very true that the economy has been liberalized,'' he adds. ``But in practice there's enough bureaucracy that would make you leery.'' Government firms monopolize production of construction materials such as cement and reinforcement bars, for example.

Even businessmen such as Mumtaz Nahas, who is reveling in the new entrepreneurial climate, are careful to keep close to the authorities. As he plans a new factory to assemble Russian-made satellite receiver equipment, Mr. Nahas is planning to sell a 25 percent stake in the venture to the government. ``It is much better,'' he explains, ``to have government facilities if you need land, or protection.''

SHAKING off 30 years of socialist-oriented Baathist ideology in economic policymaking is a slow process, and the government is clearly moving cautiously in order not to spur too much opposition, diplomats here say. But the overall thrust of the policy, one European diplomat says, ``very much reflects necessity. The government felt it had no choice but to allow a measure of opening in order to raise living standards.''

Nowhere is the force of necessity so obvious as in Syria's faltering electricity supply. Six-hour power cuts are the daily norm even in the most privileged neighborhoods of the capital. In the countryside, the lights go out for as long as 18 hours a day.

The country's crumbling infrastructure is now being opened up to private investment. But joint ventures with public sector firms are as much as the government will tolerate.

At the same time, the government has done nothing to do away with such traditional mechanisms as subsidies and price controls on foodstuffs, nor has it unified the exchange rate; the official value of the Syrian pound is four times greater than the legalized parallel rate.

Reforming those anomalies, however, might unleash inflation and the threat of social unrest. ``The main aim of the regime is to preserve stability, and the introduction of a full range of market reforms could endanger that,'' explains the European analyst. ``They are afraid to move forward too much, because that would touch the political system.''

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