The Rough Road To Reform

Changing Syria's economy will be a daunting task for the new President

It was the closest thing to a coronation ceremony modern Syria ever had: the July inaugural of Bashar al-Assad as President and anointed successor of his father, Hafez. As Bashar, a shy-looking 34-year-old ophthalmologist, stepped up to give his inaugural speech, Rateb Shallah, a prominent businessman and chairman of the Syrian Chamber of Commerce, watched on TV in his Damascus office. Shallah grunted with approval when the new President acknowledged past mistakes in managing the economy and pledged to charge up the private sector and boost exports. Bashar even paid homage to the need for "transparency" in a government where payoffs are routine.

For Shallah, such buzzwords were confirmation that the business community's suggestions to the government are finally being heard. "They listen to us," Shallah said. "We are in accord on what needs to be done in Syria."

If only it were so easy. Bashar al-Assad certainly has been making the right noises about unleashing market forces in the Syrian economy. But a visit to this Arab state reveals just how little real economic activity exists at all. Damascus in some respects resembles an open-air museum. Well-cared-for 1950s American cars still cruise the streets. In the evening, thousands of shoppers flock to the Souk al Hamidiye, the central market whose ancient alleyways lined with the colorful stalls of rug dealers seem to have changed little since the 19th century.

Although far less charming, Syria's government, too, has museum-like qualities. It is a monument to 1960s-style Arab socialism. Well-appointed officers' clubs occupy choice real estate in Damascus, and banners of President Hafez al-Assad, who ruled Syria for 30 years until his death on June 10, stream from public buildings. Assad gets credit for unifying a fragmented country and maximizing Syria's regional influence. But just about everyone concedes that he allowed Syria's economy to drift into prolonged recession.

WORKAHOLIC. Syrians hope that Bashar will be their ticket to revival. He has shown a real interest in Syria's economic problems--matters that his father left to others. There is also hope that Bashar will be more flexible in negotiations with Israel than Hafez, whose uncompromising approach to dealing with his longtime enemy pretty much guaranteed failure.

Bashar is wildly popular now--not least because the chaos many feared after his father's death has been avoided. Syrians admire the modest, almost ascetic bachelor. While other sons of senior Syrian politicians and generals like to swagger about the Sheraton Hotel and other Damascus hangouts accompanied by bodyguards, Bashar, like his father, is said to be a workaholic. He has used his presidency of the Syrian computer society to promote information technology. "He understands what a modern country is--at least economically and socially," says Marc Pierini, the European Union's ambassador in Damascus.

Such qualities have helped Bashar attract the support of reform-minded technocrats. While they have no illusions about Syria being a democracy, they prefer Bashar to a figure from the military or to someone who might have triggered a power struggle among Syria's religious sects. "In these circumstances, he is the most suitable candidate," says a local businessman. "He is hardworking, a good listener, and supported by all groups." Don't be fooled by the academic exterior, though. Bashar is also viewed as the eminence grise behind the corruption campaign this spring that led to the jailing of three ministers and a chief of internal intelligence.

Bashar knows his own position depends on the support of party stalwarts and military and intelligence commanders, many of them from his Alawite community, a secretive religious minority that holds key positions in the security establishment. These people are now backing Bashar in part because other candidates might have triggered destructive infighting. But they certainly lack the expertise to run a modern economy, and may resist reforms that threaten their interests.

Both the public and private sectors are hampered by regulations and government-controlled prices that make no economic sense. Officials, whose salaries amount to a few hundred dollars a month, tops, fiddle the system to gain a living wage or better. Hence, says a diplomat in Damascus, generals sell gas obtained from military stocks for half the going price to taxi drivers, and customs officials at the airport routinely shake down importers. The army is involved in business, too, building homes and operating furniture factories. "The economy works against a set of rules that are impossible, but they work underground," says a Western ambassador.

The experience of Pierini as EU ambassador is instructive. Brussels has committed about $100 million in aid to Syria, mostly for projects designed to promote reform in banking, power generation, and other sectors. Until recently, the government blocked all the projects, mostly through bureaucratic obstinacy. "Powerful people didn't want change," Pierini says.

Some change occurred last March, though, with Bashar's anticorruption drive. Long-serving Prime Minister Mahmoud Zubi was replaced by Mohammed Mustafa Mero, whom Pierini describes as "a smart operator who understands Syria's problems well." Zubi's deputy, Salim Yassin, and the Transport Minister, went to jail. Charged with corruption relating to a purchase of Airbus transports in 1996, Zubi himself committed suicide. Airbus says it sells its planes on merits, not through payoffs. Pierini says his projects are now beginning to move.

Syria still badly needs a private banking system, and it will not easily be able to introduce one because it has no real central bank or trained regulators. It needs to develop export markets. But it has no organizations for certifying the quality of products such as fruits and vegetables and only minimal commercial links with Western companies. "You need 10 years to turn a country like Syria around," admits Pierini.

CHINESE MODEL. Sources in Damascus say it is very unlikely that the government will bring in the International Monetary Fund or submit to any type of shock therapy. Syrians are attracted to China's model of market reform, which the Communist Party controls, while they are repelled by the chaos that accompanied Russia's economic opening. "We are just starting to talk about reform in a serious way," says Nabil Sukkar, managing director of the Syrian Consulting Bureau, a Damascus consulting firm.

Sukkar hopes that Syria's backwardness means that there is a lot of money to be made through investing in fields such as textiles, agriculture, and, he thinks, computer software--emulating Egypt's booming industry. "With a little bit of training you can get excellent results from Syrian labor," says Bassam Ghraoui, an entrepreneur who is expanding an already successful business. His Ghraoui Group is building a new factory to produce chocolate for export.

Issam el-Zaim, whom Bashar arranged to become Minister of State for Economic Planning in the last cabinet shuffle, outlines a very conservative approach. Formerly an international consultant for the United Nations, el-Zaim says that taxes will be slashed from the current top rate of 60% to a range of 30% to 40% in an effort to encourage greater collection. But he also stresses that the public sector, which accounts for about 35% of Syria's economy, will be preserved and perhaps expanded. Salaries are to be raised to discourage corruption. Private banking, which is not yet permitted in Syria, is likely to be introduced through joint ventures with state banks and later, foreign banks. "We have to face political and economic facts," he says. "There is a big external challenge. The role of state activity should not disappear."

Whether such baby steps will prove enough for Syria remains to be seen. The last few years have been brutal as Syria has had to go without the Eastern bloc and Arab aid that financed its development in earlier decades. Western sources say growth has been flat to negative for the past three years, giving Syria a per capita income of just $800 to $900. The comparable figure in Israel is $17,500, so it's no surprise that the Syrians are outclassed militarily.

The Syrian public sector is no longer able to suck up the 200,000 young people that come on the job market each year. The government puts unemployment at 5%; other sources peg it at 20% or more. In eastern Syria, persistent drought has forced 400,000 to 500,000 small farmers and herders to sell off their livestock and move to the cities in search of sustenance. Private business was energized by a new law providing investment incentives in 1991, but it, too, has lost momentum because there was very little follow-through.

This year's rise in the price of oil, Syria's main export, may provide a brief respite. But escalating unemployment and growing pressure on government services could become a big headache for Bashar. And Syrians don't fear him as they did his father, who caused the death of thousands in quashing an Islamic insurgency in the early 1980s.

NEW PARTY? There are some in the merchant community who think that the answer is to make peace with Israel, free up economic activity, and let Syrians' legendary business acumen do the rest. One such proponent is Ihsan Sankar, an independent politician from a family that is the distributor for DaimlerChrysler, Michelin, and other major companies in Syria. Sankar argues that Bashar would be wise to let the private sector start a political party to challenge the socialist Ba'ath in Parliament. In this way, Syria could have a real debate about its future, and Bashar could position himself as arbiter. Otherwise, Sankar worries, Syria will fall short in taking necessary steps to attract sufficient investment.

Bashar hasn't revealed his exact plans. He had been preparing to take over since his brother, Basel, was killed in a car accident in 1994. But his apprenticeship was not complete, and the inner circle may not have made the final decision to make Bashar the heir. When Assad died, a constitutional stipulation that Vice-President Abdel Haleem Khaddam would be interim President was ignored, and an amendment lowering the age requirement for the Syrian Presidency from 40 to 34 was hastily rammed through Parliament.

It is not clear that Bashar is in complete control now. He depends to a great extent on associates of his father including Vice-President Khaddam, Defense Minister Mustafa Talas, Chief of Staff Ali Arslan, and Bajhat Suleiman, an influential intelligence chief. Syrian analysts doubt that the insiders are enchanted with the way Bashar's program is shaping up. Despite the magic of the Assad name, powerful insiders could yet try to shunt Bashar aside or use him as a front man.

If Bashar is serious about reform, he is going to have to convince this "old guard" of the benefits or get rid of them. Neither will be easy. Hafez al-Assad maintained his power partly by allowing his lieutenants to profit from their positions. Many of them and their children have grown rich as brokers between government and business. They are unlikely to welcome reform if it interferes with their activities.

Bashar might be smart to make his mark by wrapping up a deal with the Israelis on the occupied Golan Heights. The differences between Syria and Israel amount to only a few hundred meters of land. A deal would win him aid from the West and the Arab world and, perhaps, a degree of protection that would allow him time to tackle much tougher economic issues. "Retrieval of the Golan is a unifying issue," says Sadik Al-Azm, a professor emeritus of philosophy at the University of Damascus. "Reforming the economy takes on so many entrenched interests."

But let's face it: To amount to anything, Bashar will have to do both--make peace with Israel and take on the economy. In today's world, you can't run your country like a museum forever.