Posted by Joshua on Tuesday, January 12th, 2010
Has President Assad Stepped Up Economic Reform?
By Ehsani 12 January 2010
For Syria Comment
Syria’s economic reform continued at its deliberate and cautious pace in 2009. While one may argue with the speed and breadth of the process, there is no denying that the strategic decision to reform the country’s economy is irreversible today. Reforming a country’s economy after 40 years of socialism was never going to be easy or swift, especially in a country like Syria, where the leadership is characterized by caution and the desire to avoid mishaps. Patience and stability have been the hallmarks of the presidencies of both Assads. All the same, Syria’s economic transformation has been undeniable.
By and large, president Assad allowed his economic team to publicly argue over mostly tactical matters even if they agreed on the more strategic path towards reform. The president did not seem to favor a certain camp over another.
This was the case until yesterday when President Assad removed Tayseer al-Reddawi as head of the State Planning Commission (SPC), an office he has held since 2007. Prime Minister Otri promptly placed Abdullah al-Dardari in charge of the SPC on an acting basis. Mr. Dardari has effectively gotten his old job back as head of SPC, while he continues to serve as the deputy prime minister for economic affairs, a title he assumed in 2006.
The bad blood and policy disputes between al-Reddawi and Dardari had long since broken into the open. Reddawi was an outspoken critic of Deputy Premier Dardari and the economic policies he put into place as head of the SPC. Dardari was the architect of the last 5-year economic plan. While Mr. al-Reddawi has launched a series of seminars on the economy lately, his attacks on Mr. Dardari were made public in October of 2009. Syria Comment translated and commented on al-Reddawi’s “51 point critique” of the liberalization process, which can be read here. That post triggered a debate between Dr. Omar Dahi, an economics professor at Hampshire College, and me about the virtues and vices of “neoliberalism” and Syria’s economic reform, which can be read here.
So what is one to make of the firing of Mr. al-Reddawi? Why did the President himself dip down into the midst of his scrimmaging ministers in order to act as referee?
Most recently, Mr. al-Reddawi has argued that the development of the Syrian economy has suffered from weakness of investment and from to much consumption. Consumption had become the main growth area, he complained, and its benefits had accrued disproportionately to a small minority whose consumption patterns tended to drive up imports and whose savings preferences served capital flight and not local investment. He promised to change consumption patterns and limit the growing income gap in Syria by having the next 5-year plan include previously marginalized groups in such a way that would narrow disparities of income. Other highlights of his plan included improving education to better equip Syrians for the rigors and demands of the modern job market. He also promised to broaden the tax base.
Because of Reddawi’s criticism of free markets and the wealth that has accrued in the hands of a few, some analysts have concluded that his dismissal comes as retribution from Syria’s well connected business elite and serves as a blow to the economic reform process as a whole.
The Economist Intelligence Unit wrote the following analysis on January 11.
The move to dismiss Mr. al-Reddawi, “combined with the government’s recent decision to spurn an EU invitation to Syria to sign a much-delayed Association Agreement, raises question about the depth of Mr. Assad’s professed commitment to economic reform”.
I beg to differ with the EIU’s conclusions.
While one cannot dismiss the probability that Mr. al-Reddawi was punished for his attack on the business elite, it seems more probable that the President has finally decided to weigh in on policy disputes that have hobbled the reform process. By throwing his weight behind Mr. Dardari and his allies who espouse greater free trade and less government intervention, President Assad is setting the direction of macro economic policy and ensuring that the new 5-year plan will reflect the direction that Dardari set out on years ago, when he began pruning subsidies, reforming tax and business laws, and moving toward a social market economy.
If the President’s main motive was to punish Mr. al-Reddawi for attacking the business elite, he did not have to give his job to Mr. Dardari. In order to keep the status quo, he could have given the post to another individual that represented Mr. al-Reddawi’s camp but was more supine, hence keeping the balance that has dominated the economic team.
In a recent article in the WSJ titled, “Syria woos Wall Street,” the author quoted one member of a group of prominent money managers who spent a week in Syria and Lebanon to say that some presentations by government officials were “pretty pathetic.” The group came away with “the opposite impression of Syria’s President, Bashar Assad, and its deputy prime minister for economic affairs, Abdullah Dardari.”
Mr. Assad provided direct and open answers to their questions, the investors said, and talked about the need to raise incomes, build infrastructure, and ease the government’s grip on the economy.
This was “a fairly cynical group,” Mr. Biggs says. But “he [the president] blew them away.”
Perhaps these impressions made it back to the President’s ears in time to convince him that he needs to elevate the status of Mr. Dardari. After all, if Syria wants to woo foreign investors, and it must, the economic leadership team has to speak the language that foreign investors want to hear.
The 51-point economic critique made by Mr. al-Reddawi in October of 2008 does not make the cut. Attacking the reform process while offering precious little in terms of solutions is not the answer.
To be fair, sounding the alarm about growing income inequality has merit. But, while Mr. al-Reddawi places the blame on the reforms, his attention should be elsewhere. More specifically, he should have been advising the President on how to achieve faster economic growth rather than greater equality. It is only when the economy can consistently grow by 6 to 8% a year that Syria’s growing numbers of unemployed and undereployed with begin to find the opportunities they need and deserve. The pie must grow and grow fast for Syria to begin to tackle its serious economic woes.
Syria’s economic reforms are unlikely to slow down or be derailed. Just this morning, forty prominent Syrian businessmen were informed that their taxes were no longer going to be paid on an “estimated basis”. Instead, starting this year they were required to file their income taxes based on actual earnings. This morning, when I asked one of the forty people who will have to pay higher taxes why this decision had been made now, his answer was immediate:
“I think that the Syrian Government is finally waking up.”
Economic Press Review
Syria economy: Off message
EIU Views Wire 11 Jan 2010
FROM THE ECONOMIST INTELLIGENCE UNIT
The Syrian president, Bashar al-Assad, has dismissed a senior economic policy official, in apparent retribution for him voicing criticism of aspects of the way in which the Syrian economy is run. This move, combined with the government’s recent decision to spurn an EU invitation to Syria to sign a much-delayed Association Agreement, raises questions about the depth of Mr Assad’s professed commitment to economic reform.
Mr Assad issued a decree on January 10th revoking a decision taken in March 2007 to appoint Tayseer al-Reddawi as head of the State Planning Commission (SPC), a body that has been the driving force behind the reorientation of the Syrian economy towards a market-based system and which is currently drafting a new five-year plan to run from 2011. No reason was given for Mr Reddawi’s dismissal, which took immediate effect—the Economist Intelligence Unit contacted his former office on January 11th and was told that his job had been terminated, without explanation. The prime minister, Naji al-Otari, issued an order placing Abdullah al-Dardari in charge of the SPC on an acting basis. Mr Dardari is a former head of the SPC, and was responsible for drafting the previous five-year plan. He was promoted to deputy prime minister for economic affairs in 2006, and handed over the SPC job to Mr Reddawi the following year.
It seems that Mr Reddawi has paid the price for being too free with his opinions on economic policy. A few days before his dismissal he launched a series of seminars on the economy. In his opening remarks he said that the development of the Syrian economy had been held back by the weakness of investment, both public and private, and by a high propensity to consume. He was quoted as saying that consumption had become the main engine of growth, and that the benefits of that growth had accrued disproportionately to a small minority whose consumption patterns tended to drive up imports and whose savings preferences accentuated capital flight. He said that the new plan would aim to include previously marginalised groups in the productive process and would seek to narrow disparities of income. Other elements would include a focus on improving education so as to equip Syrians better for the requirements of the labour market, broadening the tax base and revamping labour legislation.
As such, his implied criticisms appear relatively mild. However, some of his remarks could have been taken as attacking Syria’s business elite, including the president’s close family circle, and this could offer an explanation for Mr Assad’s harsh action. It would not be the first time that an economist has paid for being too outspoken—in 2005 Mr Assad dismissed Nibras al-Fadhel from his job as economic policy adviser to the president after he had spoken about shortcomings in Syria’s governance in an interview with a Lebanese newspaper.
Mr Reddawi is one of a small group of Western-educated economists that Mr Assad has entrusted with senior policy positions, which previously were the preserve of Baath party officials—other examples include Mr Dardari and the central bank governor, Adib al-Mayaleh. He obtained a doctorate in economics from the Sorbonne in 1980, and has spent most of his career as an academic in Syria and the Gulf. To judge by comments on websites reporting his dismissal he was held in high regard by his former students. As head of the SPC he was one of the main points of contact with international development agencies—in the week preceding his dismissal, for example, he was discussing the prospect of raising €600m in finance from France and the European Investment Bank for the Damascus metro project.
His departure not only deprives the Syrian government of an authoritative and capable economic strategist, but also risks souring relations with Western development agencies, whose support is vital to sustaining public investment projects.
Syria’s Deir Azzour Oil Output to Drop in 2010, Al Watan Says
2010-01-12 05:33:47.231 GMT
By Nadim Issa
Jan. 12 (Bloomberg) — Deir Azzour Oil Company, a Syrian oil producer, said production this year may drop to no more than 8.5 million barrels from 10 million in 2009 after more than a dozen wells were depleted, Al Watan reported. Of the company’s 38 wells, 14 were depleted recently, the newspaper said, citing Firas Qaddour, general manager. Deir Azzour plans five new wells to increase output, Al Watan reported.
Foreign investors set to be given the right to hold majority stakes in Syrian banks.
Syria has opened up its banking sector to foreign speculators in an effort to attract more investment in the country. According to reports by local Syrian media, the government has moved to allow foreign investors to own more than 50% of Syrian banks sector in an attempt to revitalize the country’s economy. “This is part of the reformation of the banking sector which has been going since 2003,” Justin Alexander, an editor and economist with Economist Intelligence Unit, told The Media Line. “Formerly, all of Syria’s banks were state run.”
“Back in 2003 private banks could be established and foreign investment was allowed up to 49%,” he said. “Ten conventional and Islamic private banks have opened over that period, and they now manage one fifth of the assets of the banking sector.”
“They have grown quite quickly,” Alexander added. “But most banks that started have been regional ones – either branches of Lebanese bank or other regional banks and local Syrian owned ones.” “Governments have been keen to increase the availability of credit to expand the private sector,” he continued. “Syria needs to develop other sectors of the economy to make up for the losses in revenue from oil.”
“[The government] is particularly interested in attracting international banks,” Alexander said, suggesting names such as HSBC and Standard Chartered Bank. “There is also a political element,” he added. “Syria is increasingly challenging its international isolation and it made considerable progress over the last couple of years in terms of improving ties both in the region and with Europe and the U.S.”
Referring to United States President Barack Obama’s plans to appoint a U.S. ambassador to Syria, Alexander said that the Syrian government’s plans to open up its banking sector were part of a broader foreign policy strategy. “It is economic but nothing is just economic, particularly in Syria,” he said. “There are political benefits to Syria if they can be seen to host major international companies in the banking sector or indeed in other sectors. There are plenty of good growth prospects, particularly if [Syria] signs an Association Agreement with the E.U. [European Union].”
An Association Agreement is a treaty between the E.U. and a non-member country to establish a framework to develop economic, political and cultural relations between the two parties.
“This could well happen in the next couple of months,” Alexander said. “That would make Syria a more convenient base for exporting to Europe as well as the Middle East.”…
Since American aircraft manufacturer Boeing was banned from selling spare parts to Syrian Air, the steady deterioration of its airplanes has often been cited as the most visible evidence of the embargo’s effects.
By Adam Gonn on Tuesday, January 12, 2010