Posted by Joshua on Friday, October 30th, 2009
Anyone wanting to know why Syria has not signed the European free trade agreement (Association Agreement) that was finally OK’ed by the EU states recently need look no further than this article in Arabic هيئة تخطيط الدولة تفضح الدردري !!, written by Ali Aboud and reprinted by Ayman Abdelnour’s All4Syria. In English the title is “The State Planning Commision Exposes Dardari.”
Abdullah Dardari was the head of the State Planning Commission in 2005 and is responsible for writing the Tenth, Five-Year Plan. Dardari was kicked up stairs in 2006 and named Deputy Prime Minister in charge of the Economy, although he does not have authority over a ministry or even a commission.
Tayssir Raddawi was named to replace Dardari as Head of the State Planning commission. Raddawi, who is close to Finance Minister Hussein, has been the number one critic of the 10th five-year plan and never loses a chance to point out the failures of the plan and of the previous five-year plan. He has called it “not populist” because the people don’t understand it. Dardari has been a major promoter of free trade. His efforts took Syria from “socialism” to a “social market” economy. But the impact of liberalization has had many damaging effects on Syrians – in particular – lower income Syrians.
How much of this is due to Dardari’s short comings and bad planning and how much is the necessary pain of getting out from underneath the failure of socialism and incompetence of central planning? I don’t know. My sense is that Syria is due for a lot of economic pain in order to escape bad habits and past mistakes no mater who plans the transition. Dardari had a very small staff. He was fighting large ministries, which fought him every step of the way. He had few experts to help him. Those that were outspoken and gave honest, but impolitic, assessments of the true extent of Syria’s economic problems and the source of corruption were drive out by people other than Dardari. In short, Dardari has had one hand tied behind his back. All the same, Syria has no social network to catch those who are getting crushed by liberalization. But where should the money come from? Somebody deserves the blame – I am just not sure it is Dardari.
Here are some scary facts. The following is a translation of Raddawi’s critique of the liberalization process:
1- The environment for Investment is weak and productivity is low.
2- Low private sector participation, intense global competition and a major collapse in raw material prices.
3- The GDP growth rate that Syria has is unlikely to persist given the continued inconsistencies which have been identified prior to the economic plan.
4- General Low productivity and weak institutional and administrative reforms.
5- Low technology usage in production
6- Continued high unemployment especially for the youth
7- Income is still unfairly distributed between individuals and regions
8- What high economic growth has been witnessed needs a set of metrics to ensure that it continues in both the medium and long term
9- Dependence on foreign demand is difficult since Syrian exports have not improved in both 2006 and 2007
10- A rise in the SYP exchange rate by close to 10% has had a negative effect on exports
11- Falling both private and public investment by close to 12% is a negative sign and runs counter to the economic plan.
12- Worker productivity is still poor compared to other developing countries.
13- The ranks of the unemployed are expected to increase especially for the youth.
14- The economic indicators for manufacturing have fallen significantly because of older machinery, higher costs, lack of worker skills and idle production.
15- The absence of any regular evaluation by the industry ministry of existing policies and whether goals have been met.
16- The failure to earmark enough funding to expand public sector light manufacturing.
17- Public sector light manufacturing needs new investment in machinery and a faster response function from its management regardless whether this may bring inflation.
18- The failure of the relevant government agencies to conduct regular evaluation of both private and public sector entities to help identify shortfalls.
19- Economic planning must not be built on slogans and wishes but must be realistic.
20- The fall in investments in 2007 was due to the lack of clarity in law number 8
21- The private sector is still small or medium size and is still managed mostly by a family structure.
22- The improvement in tax collection ex oil does not reflect the principals of fairness judging by the falling direct tax revenues and the rising indirect tax receipts.
23- There is still a significant amount of tax evasion judging by the fact that the growth in nominal GDP was not matched by indirect tax revenues and as non-oil tax receipts don’t match the fall in taxes revenues from oil.
24- The above tax revenue deficit has had a negative impact on income distribution and reorienting the national economy.
25- Eliminating subsidies partially on some items has had a negative effect on living standards as prices rose.
26- The existence of a stock of foreign currency outside the banking system may add to economic pressures in the event it is exchanged into Syrian Pounds.
27- In spite of the existence of private banks, government owned banks continue to dominate when it comes to both loans and deposits.
28- Inflation has risen to 17.8% in the first half of 2008.
29- The current account is not stable due to the deterioration in the trade deficit.
30- Even though the ranks of those under the poverty line has dropped, there is still 12.2% below what is regarded as extreme poverty while 34.5% under the poverty line
31- There is still no law to facilitate rental financing even though this has been presented to the economic counsel.
32- Wages and salaries now make up 30% of total GDP in 2007 after falling from 32% in 2005. Real wage growth also fell from 9.9% in 2005 to 3.2% in 2005.
33- The implementation of the economic liberalization program has had a negative effect on income and spending due to a fall in real economic growth.
34- There is still no solution to the pollution of the water used for residential, industry or agriculture.
35- Per capita water availability is down to 747 m3 per year which is a level below the water poverty level of 1000 m3.
36- 8% of agricultural land has suffered degradation due to the environmental changes.
37- Land truly used for agriculture has fallen by 2.6% due to increased urbanization and water resources which has increased the risks of investing in agriculture.
38- The agriculture insurance laws is yet to be issued which has made it difficult to implement the past contracts between producers and marketing institutions to help regulate the market. The absence of private marketing concerns with deeper pockets has not helped in organizing the marketing either.
39- The volatility of raw materials has slowed down the implementation of investments in agriculture.
40- The failure of most tenders or managing them effectively to fit the feasibility studies of development projects.
41- Even though a number of laws have been passed, failure to implement them has resulted in deteriorating resources and encroachment on agricultural land.
42- Extended weakness in both private and public Tourism institutions.
43- Goals were unmet in air transport due to the low number of available aircrafts.
44- The unavailability of laws governing BOT type investments and the failure to allocate funding to the government owned entity in charge of highway and road construction.
45- The reluctance of the private sector to invest in high cost infrastructure projects has resulted in the lack of detectable improvement in the road and rail networks.
46- Nothing has been done about the identified inconsistencies in the economic plan.
47- Low investment spending has resulted in lower budget deficit but this made the level of investments inconsistent with the economic plan.
48- Revenues have fallen short for many reasons including the lack of a credible system that of taxation and the avoidance of tax evasion.
49- There is still no strategic plan to deal with the public debt in way that would balance the needs of the national economy as a whole.
50- The level of interest rates is still not conducive to increased investments.
51- Most of the policies that were crafted to deal with the economic crisis are yet to enter the implementation stage.
I asked Ehsani for his comments, which are posted below:
The 51 point-criticism of Dardari and the so-called economic reform plan is extraordinary in both depth and scope. The reformers are being blamed for everything from high raw material prices to low investments, productivity and economic growth that have left 34% of Syrians (6.8 Million) living below the poverty line, which is 2$ a day. No punches were spared. Even the country’s exchange and interest rates were deemed too high for both exports and investments.
The tone behind the scathing attack is one that identifies with the suffering of the working class — poor workers and farmers — who have seemingly suffered the brunt of the recent economic reforms that are underway.
While few solutions are offered, it is clear that the author is calling for more public sector investment in both agriculture and light manufacturing coupled with more taxation of the rich through direct rather than indirect taxes.
While such solutions may appease die-hard Baathists, they conveniently overlook the true causes of our economic malaise. Dardari’s liberalization process did not start us down this road. On the contrary, the long absence of liberal reforms brought us to this point. The Baath has been in charge of economic policy for over 40 years. Undoing the damage caused by extensive reliance on subsidies amid a population explosion and persistently weak economic growth will not be easy.
Some would argue that the economic reformers ought to have provided a wider safety net as they embarked on their program. That criticism fails to explain from where the funding of that safety net would come. The country’s coffers are under severe pressure. One of the criticisms that I have been sympathetic to has to do with taxation distribution. Syria’s very wealthy do not pay their share of taxes. Most boast of their ability to evade taxes and wonder why they should pay any tax given the lack of services. This is a classic chicken and egg problem. Services are weak because tax receipts are low and tax payers don’t want to pay since they receive no services.
In the opinion of this writer, Syria’s problem is not that the reforms have been too fast but rather too little too late. A massive culture of dependency on the state has grown up in Syria; it is so pervasive that average Syrians have come to regard subsidies and government jobs as their right.
Syria’s economic challenges are likely to be enormous. The 51-point document must serve as the best illustration of that. Solutions like increased investment in the public sector caused the problem in the first place; they will not solve it. Similarly, solutions relating to increased investment in agriculture conveniently overlook the fact that Syria suffers from a severe shortage of water resources. Less dependence on agriculture that heavily depends on water and not more must be the answer.
It is time for bold leadership in economic matters. There are no easy solutions, given the daunting set of issues the country faces. Arguing and bickering between the reformers and the hawkish Baathists merely delay finding a credible set of solutions that have been in short supply thus far.