Economist Responds: What do Subsidy Cuts tell us about the Baath? Is it Washed Up?

Yesterday, SC published the Economist on the price of Gasoline in Syria. Comenters contested whether there is really a "conflict between Baathists and Non-Baathists, as the article suggests." Ahamd decried the electricity hikes that he believes are hammering Syrians even harder than gas hikes.

The author of the Economist Intelligence Unit replied to both: [Thank You]

Hosam wrote: November 3rd, 2007, 6:14 pm

I would have expected a better analysis from the EIU. Yes, the traditional Baath establishment is opposed to lifting the subsidies at this moment, but it’s not because of cronyism as the analysis suggests, but rather because they fear the potential social and political outfall from raising the subsidies. This is not a conflict between Baathists and Non-Baathists, as the article suggests; It’s a conflict in views with regards to priorities, sequencing and timing in making economic policies.

Ahmad wrote: November 3rd, 2007, 4:41 pm

yeah well….why hasn’t anyone mentioned the Electricity hike?? Its gone up 3 times in price!!!!!!!! Actually between 3-4 times.

This is really gonna hurt your average Syrian, 4 days ago I recieved my bill, instead of being 800-1200/2mths as usual…..it had rapidly increased to 3300 pounds!!!! How can the average Syrian afford to live anymore??

Lets watch the streets, starvation on the uprise for sure. This is a sure way to make people want to see change….is the Government that Naiive?? If the price of Micro Buses goes up soon……..hmmmmmm

EIU responded:  Date: November 4, 2007

Hosam, sure there is an issue regarding the social impact of cutting subsidies. But it is undeniable that the impetus for the long overdue structural changes to the Syrian economy is coming from non-Baathists, and these arguments are being at best grudgingly accepted by the party. I would also dispute the cntention that cronyism is not critical to this debate.

On the electricity issue, the government’s case is summarised in a recent EIU report:

The government also faces a considerable financial burden in maintaining electricity supplies, both from subsidising tariffs, which are below the cost of production, and, more importantly, from financing investment in new generating capacity. At the start of September the Ministry of Electricity put into effect a new schedule of electricity tariffs based on a sliding scale, with heavier consumers obliged to pay much higher rates. For domestic consumers there are eight bands, ranging from a nominal charge of S£0.25 (half a US cent) per kwh for those using 100 kwh in the two-monthly billing period to S£4 (8 US cents) for those using 2,001 kwh/y and more. For the highest band the entire electricity supply will be charged at the top rate; users of 2,000 kwh or less will be charged on a staggered basis. According to the electricity minister, Ahmed Khaled Ali, the overall charge for the mean household consuming 800 kwh per billing period will actually come down to S£710 (US$14) from S£810 previously. He did not specify the extent of the increases in charges for higher users. He said that rumours to the effect that bills would henceforth be charged monthly were unfounded. For industrial users, charges will range from S£150 to S£500, depending on the time of day (with the highest charges during domestic peak times—in the evening).

Household electricity tariffsa
Consumption (kwh) Tariff (S£)
0-100 0.3
101-200 0.4
201-400 0.5
401-600 0.8
601-800 2.0
801-1,000 3.0
1001-2000 3.5
2,001 and above 4.0
a Based on a two-monthly billing period.
Source: Syria-news.com.
Download the numbers in Excel

Mr Ali said that in 2006 Syria’s total electricity consumption rose by 8%, compared with the previous year, to 37.7bn kwh. The system has shown the strain during 2007, with regular power cuts during the summer months, when demand peaks owing to increased use of airconditioners and supply is affected by falling water levels behind the Tabqa and Tishreen dams on the Euphrates river, which account for about 20% of totalled installed capacity of 7,500 mw. Mr Ali said that the situation has improved owing to the recent start-up of a new 150-mw unit at the Nasiriya power station in Damascus; a second 150-mw unit is scheduled to come into service at the same plant in late October. Over the next two years two 750-mw combined cycle plants, at Deir Ali and Deir al-Zour, are also set to come on stream, and a further 2,000 mw of new capacity is planned by 2010. Mr Ali said that the total cost of the ongoing and planned power station projects is about US$6bn. The bulk of the financing for the projects that are now under way is coming from the European Investment Bank and Arab development agencies.

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Comments (15)


1. EHSANI2 said:

The lifting of subsidies has nothing to do with who is pushing for it. It has to do with simple arithmetic. As I have been writing on this forum for over a year, the country’s fiscal position is in trouble. How can a country hold subsidies at 19% of its Gross Domestic Product?

As the population expands (doubles every 34 years), the pressure will intensify further. This policy was wrong from the start. The numbers were small so no one really paid enough attention. The country now faces an 8000 pounds gorilla that is of its own making. They know that they have to do away with the program but they are afraid of the political repercussions.

Subsidies and entitlements are very easy to start. They are much harder to stop. We now have a SYP 350 Billion problem. People have been under a false sense of security. They have marveled at how cheap their bread, electricity and heating oil is relative to their neighbors. No one thought about the costs of these programs. The government economic planners seem to have finally woke up and smelled the coffee.

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November 4th, 2007, 10:09 pm

 

2. norman said:

The subsidies have to go , Syria can not afford them , The Syrian government still has to be able to care for the Syrian poor while letting the rich who can afford market prices for products pay for them , food stamps for the people under the Syrian poverty line can be used , people who have cars for pleasure should be able to pay market prices so are the people who travel abroad ,

As for electricity , Syria can give credit to the poor on their accounts and have one price for electricity , so the poor will be subsidized while the well to do pay the market price .

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November 5th, 2007, 1:04 am

 

3. ugarit said:

EHSANI2 said: “How can a country hold subsidies at 19% of its Gross Domestic Product?”

Why can it not?

EHSANI2 said: “People have been under a false sense of security.”

False sense of security! Since when has it become a false sense of security for people to be given essentials, such as subsidized bread? The life of people is far more important than the theories of economics.

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November 5th, 2007, 2:31 am

 

4. norman said:

Ugarit,
Nobody said that the Syrian people should not have bread or other necessities , the question is why the Syrian government should subsidize products the rich Syrians can pay for , wouldn’t it be better if the money that the government saves by charging these people market value is used to make the life of all Syrians better , we have to remember that many of these people go to the EU on vacation where they pay market value , it is only fair that they pay market value in Syria , Isn’t it? .

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November 5th, 2007, 2:58 am

 

5. majedkhaldoun said:

lifting of subsidies should be slow and gradual.

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November 5th, 2007, 3:05 am

 

6. norman said:

Majed
It looks like they are doing that.

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November 5th, 2007, 3:11 am

 

7. EHSANI2 said:

UGARIT,

You don’t know what you are talking about.

When you GIVE essentials, someone has to pay for it right? Why stop at bread? Why not also give them a car and a paid vacation too? What are essentials? Bread, electricity, fuel, rice and sugar already make the list. I am sure that you would recommend more.

“The life of people is more important than economic theories?”

How profound.

Which “people” ? the poor? How poor? Is there a cut off limit? Do rich people concern you too or are these subhumans to be taxed to the limit to help spread their ill-gotten wealth and to use their tax revenues to subsidize your socialist/communist dream.

It is people with ideologies like yourself who have bankrupted this country. The Baath ideologues got it dead wrong. They are now trying to find a way to undo the fiscal disaster that they helped create in the first place.

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November 5th, 2007, 3:59 am

 

8. SimoHurtta said:

Hmmm maybe Eshani2 could enlighten us what economical theory supports agriculture production subsidies in USA and EU. Also price regulation is/has not been unknown in the western countries.

What Eshani2 constantly forgets that Syria is now on the same economical “level” as western countries were 50 – 100 years ago. And at that economical development stage EU countries had subsidies, custom barriers, price regulation, state owned industries, investment benefits etc. “Free” economies in the west is a very new invention.

This slogan of completely free economies is pure BS. There are none in the world. EU countries have just recently privatized for example the state owned telecom companies. USA protects own industries with numerous ways. ETC. It is completely unrealistic to think that Syria can jump on the same “free trade” level as European countries and USA without some planing and gradual moves. Well it could, but then Syria would be owned by multinational corporates and Syrians would work for foreigners.

Offering some social security to the country’s poor by artificially low food prices, cheap electricity and petrol is one solution, but undoubtedly not without problems. But many countries have started their economical development using this king of price regulation.

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November 5th, 2007, 6:39 am

 

9. fadal said:

dear joshua
there are no baathists and Non baathists in syria. this idea is only in the mind of foreign reporters and writers. in reality there is no place for an baathist to take or not take an action. all decrees are taken by the president recommended and dicussed by a few people only on the high level of power. this justifies the bad economic process which is driven not by creating a better life for the syrians but by the lack of cash for the gov.

any speculations about baathists and non baathist is rather very shallow. if dardari is not baaathist he is not anti-baathist and cannot be. the situation is that you cannot differentiate betweeen the baathist and non baathiost because both are not there…hope you can see this reality. it is quite like Iraq. the whole issue is about a well made ad machine which tries to blame non existed baathists for the mistakes which happened or may happen. if you tell anyone in syria baout that…they will laugh for long….

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November 5th, 2007, 8:54 am

 

10. ugarit said:

EHSANI2 said: “When you GIVE essentials, someone has to pay for it right? Why stop at bread? Why not also give them a car and a paid vacation too? What are essentials? Bread, electricity, fuel, rice and sugar already make the list. I am sure that you would recommend more.”

Clearly you’re in the upper tax bracket, 39% is it?, because you don’t seem to grasp how the others live. Hope you’re never in charge of the Syrian economy because you’ll facilitate further hardship on Syrians for the sake of the “correct” economic model. But of course, the Syrian stock market would look good under your system.

So paid vacation is wrong? Or did you mean paid time off?

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November 5th, 2007, 2:15 pm

 

11. ugarit said:

SIMOHURRTA asked EHSANI2: “Hmmm maybe Eshani2 could enlighten us what economical theory supports agriculture production subsidies in USA and EU. Also price regulation is/has not been unknown in the western countries.”

That question can’t be answered because supply side “economists” ignore facts and reality to fill their pockets with more cash.

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November 5th, 2007, 2:23 pm

 

12. idaf said:

The 2007-2008 World Economic Forum’s Global Competitiveness report was just released. Syria ranks much better than many would have expected. Full ranking here.

The Arab World Global Competiveness Report 2007 by the WEF included this detailed analysis about Syria (based on 2006 data). According to this year’s report, Syria’s score has improved slightly and it moved up 4 spots on the ranking. This year’s country analysis is not accessible yet.

The Syria Report has issued its views on this here: http://www.syria-report.com/article2.asp?id=2595&rub=6

The WEF report follows a subjective methodology (as it bases its analysis on indicators produced by different organizations) and there are many “issues” with its data. However, it is still a factor in most decisions taken in doing business.

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November 5th, 2007, 3:51 pm

 

13. Majhool said:

I am not an expert in Economics, so Ehsani2 and others please help me answer few questions brewing in my head for some time now:

1) Fiscal deficit is usually a disaster when it constitutes more that 20% of the Country’ GDP! Right? How do we stand on that one?
2) I always thought that there was large amount of money that does not circulate in the economy and hence the Economy is smaller in Size that it should/could be. Does anyone have an estimate on how big the economy could be if that money is used?
3) How much does income tax account into the budget and the GDP. What are the numbers for competitive economies? How much is it in Turkey?
4) I come from a family of merchants and I know for a fact that merchants don’t pay half as much as they should. The government can’t just ask the poor to pay taxes what is being done to that effect?
5) How about service providers/contractos? How do they pay their income tax?

6) What is the percentage of subsidies that goes into commercial/industrial use as apposed to domestic consumption?

7) Inflation is rising due to strong demands, right? Is it possible to eliminate customs on goods every time the market price exceeds the international market price? Would that help?

Thanks

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November 5th, 2007, 6:59 pm

 

14. AnotherIsraeliGuy said:

Idaf,
Look at table 3 on page 9. Syria is ranked as a stage 1 country. What are you happy about in this report? Turkey is a stage 2 country for example.

The ranking is important because how different factors in the competitive index are weighed depends on it. So the “competitivenes” of Syria is computed as that of a third world country. This is not really a race you want to be in.

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November 5th, 2007, 8:30 pm

 

15. Friend in America said:

I have been very impressed by the remarkable comments posted in this and previous threads, that were stimulated by Josh’s selection of articles. I see a glimmer that Syria might be at the edge of a new economy that will raise the standard of living for all its citizens. It has happened elsewhere and it can happen in Syria.

Many countries that transitioned from a managed economy had economic problems that remind us of Syria today:
1. Subsidies that impaired the government’s ability to adequately provide needed services (the health system for example).
2. A set of outdated regulations that stifles entrapreneurship and trade.
3. Import tarrifs that protect inefficient industries.
4. Inadequate compensation of government employees that breeds bribery.
5. A system of taxation that is increasingly ignored and evaded and lacks adequate accountability.
6. Insufficient capital to maintain and improve the infrastructure.
7. Spending national resources on adventures that are economically non-productive.

Consider the experience of the countries that made the transition from a managed economy. The Baltic countries are a good place to start. They began with fewer resources than Syria has now and today they have one of the highest standards of living in Europe. Every negative expressed in the comments in this thread were experienced in those countries and they came up with successful responses.
Study the transition in Russia. I think you will conclude that is not the way to do it. But in studying Russia note how far behind the rest of Europe Russia had become in economics, technology, product development, infrastructure, even safe air transports.

My concern for Syria, and I direct this comment to our blog site friends in Syria, is the negative attitude of “no can do” and “see, the others guys are wrong, too”. Negativity stifles creativity. It prevents progress. This is the most serious long term danger to the Assad regime. Syria’s real danger is not foreign countries, not internal disputes.
Some in this thread complain of a hegemony in the ME by America and Saudi Arabia. Wake up. Hegemony in the manner of pre 1914 international affairs does not exist any more.
There is more to be gained by friendly cooperative relations with a neighbor than by 19th century colonial type economic exploitation. Consider the economic advantages of a friendly, non intrusive relationship with Lebanon. Lebanon as a friendly neighbor has much to offer in financial services, tourism, trade and in many other ways. There is a commonality of peoples, a high amount of trade, and many common concerns. Syria has much to gain and little to lose that is worthy by extending the hand of friendship and cooperation.
France and western Europe are rejected by some Syrians because of their “history of colonialism.” There is no colonialism today. Europe has had no war since 1945. I cannot think of a time after 1200 AD that Europe has experienced peace for so long. Europeans are basking in the sunshine of peace and prosperity. They are in no mood for military ventures (even us Americans cannot stir them up). Instead, they have extended to you the hand of friendship, cooperation and even financial aid. Take their hand. Your people will be the better for it.That does not mean Syria has sold out to the west. It means Syria has joined the family of nations and desires to be an active economic participant.

One does not have to agree with my remarks about hegemony, 19th century colonialism or France in order to support an inspired economic change for the betterment of the people of Syria. There is no better calling for a government than to adopt measures that will provide a life for our children that is better than the life we have today.

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November 15th, 2007, 2:28 am

 

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