Posted by Joshua on Tuesday, October 17th, 2006
Syria's Foreign Policies Impede Economic Progress, Dardari Says
October 20, 2006
Syria’s Deputy Prime Minister for Economic Affairs Abdallah Dardari has been the country’s chief spokesman and optimist when it comes to promises of reforms and economic prosperity.
As readers of this forum recall, this writer was always a skeptic. While the Minister promised reforms and tried to convince his populace that growth and prosperity were around the corner, this writer offered caution and warned that the country’s true economic prospects are far worse than what is being portrayed by the country’ s leadership.
This summer, I posted a note on "Syria Comment," entitled “Does Syria’s President Have The Will Or Conviction To Reform”. Set below is my opening remarks from that article:
“Syrian political reforms are unlikely to take place anytime soon. The President has recently listed security as first on his agenda. Some people think that this is a direct result of the recent events in Iraq. To be sure, however, security has always been Syria’s top priority under this regime. Indeed, it is only when one fully understands how much this leadership is preoccupied with security that one can fully appreciate what Syria is all about. Against many odds, this regime has been able to stay in power for close to 40 years. The longer it has been able to stay in power, the more convinced it has become that its preoccupation with security in not only warranted but a prerequisite for survival. All calls for political reform is viewed with great suspicion. Pushing for such reforms is seen as a prelude to weakening the grip of regime, which will ultimately lead to its downfall. The regime is unlikely therefore to want to tinker with a survival formula that has served it very well over four decades.”
Since then a lot has happened of course:
Arab leaders were derided and referred to as half-men. The country’s relationship with the U.S. and the west continue to deteriorate. Cooperation and coordination with the Islamic Republic of Iran has strengthened. The Hariri investigation still hangs as a dark cloud over the country.
As the country’s leadership charted its political strategy, reforms and the economy were bound to fall as victims. Thus far, the country’s leaders gave the impression that they can handle the political pressure AND deliver on their economic growth promises.
According to the article below, not anymore.
"Syria's Foreign Policies Impede Economic Progress, Dardari Says"
(Bloomberg) — Syria's refusal to bow to U.S. pressure to sign a peace treaty with Israel has choked aid flows to the Arab nation, jeopardizing plans to sell state assets and cut the bloated public payroll, a cabinet minister said. Syria, which is under U.S. sanctions, would risk civil unrest if it pushed through reforms that drove up unemployment without first guaranteeing social benefits and pension accords, said Deputy Prime Minister for Economic Affairs Abdallah Dardari. “In a country that is confronting all these regional challenges and is under pressure from the West because of its political positions, is it worth it to have social unrest,'' said Dardari, 42, in an interview on Oct. 11 in his office in Damascus.
“We are definitely not willing to pay the political price of such international financial support.'' Syria, which borders Iraq and Lebanon, is seeking to cut some of its 1.3 million state jobs to offset tumbling revenue from oil production, which now accounts for 40 percent of fiscal income. The U.S., the biggest potential donor of financial aid, expanded sanctions in 2004, accusing the country of pursuing weapons of mass destruction and hindering the U.S. effort in Iraq. Syria denies the accusations.
The U.S. has blocked Syria's application to enter the World Trade Organization. The European Union, which imports almost half of Syrian exports, delayed ratification of a free trade accord.
Jordan and Egypt have signed peace accords with Israel and now receive aid of about $2.3 billion a year from the U.S. and have won tariff-free access to its markets.
Syrian President Bashar Assad says the country will only sign a peace accord with Israel in return for the Golan Heights, captured by Israel in the 1967 Six Day war. The government needs to boost growth and raise taxes to avoid a fiscal crunch in 2010, when the International Monetary Fund forecasts it will become a net importer of oil. The state plans to introduce a value-added tax by 2008 and lower fuel subsidies to compensate for a decline in oil revenue, Dardari said. Oil production, running at about 400,000 barrels a day, is expected to drop to 12 percent of gross domestic product by 2015, from about 25 percent now, the IMF says.
“We have a budget deficit risk because of depleting oil resources, this is the driving force behind our reform program,'' said Dardari, a former journalist with the London-based Saudi-owned al-Hayat newspaper.
To date, Syria has failed to boost tax revenue to compensate for declining income from oil. Tax as a percentage of GDP is currently at a low of 10.5 percent, compared with 13.7 percent in Egypt and 15.8 percent in Jordan, according to the IMF.
“We would like to go faster but there are a number of reasons why we are not. For example, human resources to manage a market economy do not exist in Syria,'' said Dardari. Syria has cut income taxes over the past two years to 28 percent from 64 percent in order to broaden the tax base and boost revenue. The government wants to raise income from direct and indirect taxes to 14 percent of the GDP by 2010, from 7 percent now, Dardari said.
“So far implementation of reforms such as lowering taxes has been mixed,'' said David Butter, senior Middle East analyst at the London-based Economist Intelligence Unit. “There has been some progress, but it is small and limited.'' Under a five-year plan adopted by the Baath Party in 2005, the government set a target of maintaining a fiscal deficit of 4 percent of GDP by 2010. To do that, it needs to slash fuel subsidies that will rise to 14.5 percent of GDP by the end of this year, the IMF estimates.
Syria aims to boost economic growth to 7 percent by 2010 by reducing paper work, easing state controls and attracting more investors, Dardari said. It currently takes 43 days on average to start a business in Syria, compared with nine days in Turkey and five days in the U.S., according to the World Bank.
The country is counting on investments, mainly from Persian Gulf countries, to boost growth in non-oil industries such as manufacturing, tourism, services and banking, Dardari added. Investment increased 88 percent to 375 billion Syrian pounds ($7.2 billion) last year from 200 billion pounds in 2004, he said. “Regional surplus oil revenue is looking for places to invest so we managed to grasp that opportunity despite the very difficult political circumstances,'' said Dardari, who also heads the State Planning Commission in Syria.
Unemployment, which the government says is at 10 percent, is forecast to decline to 8 percent by 2010, according to the five-year plan. The IMF estimates that the unemployment rate was at 14 percent in 2004 and could exceed 20 percent by 2010 because of a 4 percent annual increase in the labor force.
“There will be some painful decisions, for example cutting fuel oil subsidies,'' said Dardari. “Yes, these decisions are coming, but we are doing them in a manner that suits the social stability and coherence of the people of Syria.''
Being the eternal optimist, Mr. Dardari reminds us of course that these decisions “are coming”.
I would not hold my breath.
Let me conclude by reminding everyone what a 4 percent annual increase in the labor force means: Even in an expanding population like that of the U.S., the labor force currently grows at 1.1 percent annually. Labor Force is defined as that portion of the population, which is actively seeking work. Given the low median age of the Syrian population, the labor force as a percentage of the population is relatively high. As more women decide to seek work, the labor force as a percentage of the population is likely to expand further. However, even if one assumes that today’s labor force makes up only 60 percent of the total population, one can conclude that close to 12 million Syrians belong in this group. A 4 percent annual growth translates into 480,000 new entrants into this pool every year. In other words, unless the economy creates 480,000 new jobs every year, the ranks of the unemployed will continue to rise. Note that creating this many jobs will not help the already unemployed but only the new job seekers.
This is a ticking time bomb that no one wants to confront or address.
Most Syrians are apparently proud of their leader for standing up to the west and the great Satan in particular. They choose to ignore the country’s massive economic challenges ahead. Regrettably, our country’s fortunes and the economic well being of our citizens continue to deteriorate at an alarming speed. Most people on this forum do not feel it. It is highly unlikely that they represent the majority of struggling Syrians who do not know or have not seen any better since birth. Millions of people have resigned themselves to the fact that prosperity and higher standards of living is not for them. For 43 years, their leaders have convinced them that their country is challenged and targeted. With the loud tunes of that CD playing in their heads, the country continues to live in denial of what the future holds for them and their future generation.