Syrian pound (SYP)
The Ba'ath Party and the rule of Hafez al-Asad
In many ways modern Syria has followed the familiar course of Arab nationalism during the 1950s inspired by the Egypt of Nasser and from 1958 to 1961 united with Egypt to form the United Arab Republic. Dispute over leadership dissolved that union quickly, and Syria would form the Syrian Arab Republic in 1961. In 1963 the Ba'ath Party seized power. The Ba'ath (renaissance or rebirth) party professed socialist inclinations and it was conceived by the two Syrian teachers the Christian Michel Aflaq and the Muslim Salah al-Din Bitar as an ideology to fight European colonialism in the 1930s. The Ba'ath is the same nominal party that has ruled Iraq from the same period in the 1960s until April 2003 when the rule of its most infamous exponent, Saddam Hussein was terminated by the Anglo-American invasion that began in March of that same year. It's important to recognize that, while the Ba'athist leaders described their seizure of power in 1963 as a revolution, it was in fact a coup carried out by a few military officers, and did not result, nor did it have the support of, a mass uprising of workers and peasants.
The resulting regime was another military dictatorship. Bitar became the first president from 1963 to 1966 when a more radical faction seized power. A further coup in 1970 brought Hafiz al Asad to power. He ruled Syria until his death in 2000, when his son Bashir al Asad took over. The foundation of the party since the coup has rested with the Alawites, a Shi'i Muslim sect to which less than ten per cent of the Syrian population is affiliated. Asad therefore closed the circle of power to Alawites he could trust and co-opt letting few outsiders into the inner circle. The nominal use of the term 'revolution' to describe what was in fact a coup is crucial in understanding the importance the Syrian Ba'athist party under the Asad regime has placed on maintaining an extensive and repressive internal security apparatus and why reforms, economic and political, have been so difficult to implement. In a very similar approach to that of his neighbouring Ba'athist rival Saddam Hussein, Asad relied on a power group that was organized far more on a tribal or ethnic basis, rather than an ideological one.
Regional Tensions: The Ottoman past, Israel and the USA
Internal problems have been compounded by the events of the region in which Syria has unavoidably become entangled even before the period of the European mandates in the 1920s and 30s that fuelled the rise of nationalist parties and ideologies. During the Ottoman Empire the area now occupied by Israel, Palestine, Jordan, Lebanon and the current Syria was part of the region known as Bilad-al-Sham. The repercussions of this legacy are still being felt. In 1860 there was a civil war that affected Damascus and the Lebanon involving Druze, Sunni Moslems, Maronite Christians and Jews - along with their European patrons engaged in bitter disputes that are still partially unresolved and that have contributed to fuelling inter-confessional tensions resulting in civil wars in Lebanon in the 1950s, 1970s and 1980s. At the end of World War I and the defeat of Ottoman Turkey, The British and the French divided the region of Sham and drew the boundaries of new states. The inter-confessional tensions acquired a trans-national nature and the region continues to endure a constant level of tension. While Syria has enjoyed generally good relations with Turkey, its neighbour to the north, it has engaged in wars against Israel four times on the battlefield maintaining a level of war readiness best described as a 'cold-war'. 18,000 Syrians still live in the territory of the Golan, a precious source of water and arable land, occupied by Israel in 1967.
Moreover, Syria has had disputes with fellow Ba'athist Iraq to the east supporting Iran in the latter's costly war with Iraq from 1980 to 1988 and continues to occupy part of Lebanon in which it played an important military role. Syria's initial involvement in Lebanon was during the 1976 civil war when it supported the Christian Maronites. The 1982 Israeli invasion of Lebanon led by General, now Prime Minister, Ariel Sharon saw another round of military clashes between Syrian and Israeli forces. Meanwhile, as Iran's quiet ally in the war against Iraq, Syria also helped sustain the Shi'a faction represented by Hezbollah. In 1989, Syria endorsed the Charter of National Reconciliation, or "Taif Accord," a comprehensive plan for ending the Lebanese conflict negotiated under the auspices of Saudi Arabia, Algeria, and Morocco. More significantly, in May 1991, Lebanon and Syria signed the Treaty of Brotherhood, Cooperation, and Coordination outlined in the Ta'if Accord, which intended to establish the basis for Syrian-Lebanese relations. The Treaty's provisions have yet to be fulfilled. The Israeli occupation of south Lebanon until the spring of 2000, its frequent attacks on Hezbollah and other groups said to be operating in Lebanon and the second Intifada by Palestinians in the West Bank and Gaza territories have heightened Arab - Israeli tensions and precluded Syria's withdrawal from Lebanon. Syria also claims that the UN resolution 425, which called for Israel's withdrawal from Lebanon, also demanded its withdrawal from the Sheba farms in the Golan Heights. This territory is often used by Hezbollah to launch attacks against Israel and is at the heart of continued tensions between the three countries.
The Two 'Gulf' Wars, Intifada II and the War on Terror
Escalating regional tensions exacerbated by the continuing intractability of the stalled Arab Israeli 'peace-process' and the USA's war on Iraq suggest that the Syrian presence in Lebanon will be extended indefinitely. However, when dealing with the United States, Asad has often adopted more strategic and pragmatic policies rather than ideological ones, confirming the need to insulate the party from popular tensions. Indeed, Asad's participation on the side of the American coalition during the 1991 Gulf War was a calculated gamble that paid off handsomely in terms of regional politics and international prestige - in the West. Syria's support was rewarded by considerable financial aid upwards of $2 billion from the USA and Arab oil producing states of the Gulf - who had, ironically, ignored Syria in the 80s for supporting Iran in the Iraq-Iran war - while also receiving a virtual blessing to pursue its interests in Lebanon. The important element that eluded it was the return of the Golan Heights, which are still occupied by Israel. In the mid 90s Syria's international prestige was heightened as it became clear that Syria's participation was crucial in any comprehensive Arab-Israeli peace arrangement.
The collapse of the Soviet Union also facilitated Syria's position in foreign policy orientation and it succeeded in securing better relations with the West and America during the Bush sr. and Clinton administrations. But, even as Bashir al Asad has taken steps to relax some of the Ba'ath party control while gradually shifting to a more liberal economic system, Syria has been relegated merely one step below 'Axis of Evil' status by the Bush jr. administration after the September 11th attacks and the so called War on Terror. Syria had provided assistance to the US in its pursuit of militant Islamic groups, but was opposed to Gulf War II as Syrian - Iraqi relations improved considerably in the last decade leading to the war. Syria even received oil from Iraq after re-opening a pipeline leading to the Mediterranean Sea, which was shut down in the tense period of the 80s decade. Moreover, the failure of the Arab - Israeli peace process has also relegated Syria to a less favourable geo-political position in the Americans' view and heightened tensions in the region of Sham, particularly in terms of allegations by Israel and the US that Syria continues to back Hezbollah, which is now also a fully recognized political party with representation at the Lebanese parliament. It seems that little has changed since Ottoman times. The political risks that Syria faces now are high as tensions between itself and Israel continue to increase, but there are also internal issues related to Bashir al Asad's gradual efforts to liberalize the economy as well as the political system.
The economy and economic liberalization efforts
Most analysts have conceded that during the 1950s Syria was one of the most rapidly developing countries in the Third World. Its economic growth was diversified and relied on one of the healthiest agricultural production systems in the entire Middle East that was even in the declining growth years of the 1980s, still capable of guaranteeing a high degree of self sufficiency in food supply. Few countries in the MENA (Middle East and North Africa) region can claim such an achievement. Syria was also industrializing at a better rate than Egypt and could also count on petroleum and natural gas resources. However, the frequent coups and political instability in the early decades of Syria's independence mismanaged the many advantages that it held over its neighbours, not least of which were a relatively strong supply of water and arable land. Ideological concerns led to the nationalization of most enterprises and the alienation of the business and economic establishment. Many of the Sunni capitalists fled to neighbouring Lebanon where they shifted their economic activity from capital intensive industry and agriculture to services and trade.
The economy of Syria, then, has since the 1960s been characterized by varying degrees of state intervention designed to reduce regional and class disparities. This is crucial in understanding the Asad's regime's reluctance to adopt full liberalization measures and the ineffectiveness of reforms. As in any highly nationalized economy, reform presents severe economic as well as political challenges; Syria's situation is made all the more difficult as such reforms also have a delicate ethnic dimension.
The Reforms and Their Political Risks
Economic reform in Syria has been a gradual process that was actually begun with the ascension of Hafez al Asad to power in 1970. He relaxed some of the nationalization measures of the 1960s and fostered the emergence of a new business class based on state officials who were allowed to amass fortunes in exacting transaction fees from foreign companies wishing to do business in Syria. He also took a risk by inviting some of the Sunni capitalists and landlords, who left Syria in the wake of its nationalization, back, inviting them to invest in the important industrial, tourism, construction and agricultural sectors along with the government officials - mostly from the Alawite minority - as they accumulated wealth. Industry is very important in the Syrian economy accounting for 15% of the labour force and even in the recession in the 80s, Syrian GNP was still made up 18% by industrial manufacturing, while oil exports only accounted for 4% in a pattern which is the very reverse of the Gulf States.
The 1980s saw the first important efforts to implement market reforms. The Iran - Iraq war caused shortages in foreign exchange, while subsidized oil from Iran and budget spending cuts of 5% were unable to sustain the subsidies on which the distributive socialist pretensions of the government rested. Its greatest concern was to prevent a rise of the unemployment rate, while also blocking the rise of the Sunni capitalist class that dominated politics prior to 1958. By 1988, the Syrian pound was devalued by 70% to invite inflows of hard currency and mixed private - public sector enterprises in agriculture (a precursor of Britain's Private Finance Initiatives) were formed with the aid of twelve entrepreneurs. The measures worked, but the government used the extra revenues to re-invest in public enterprises and was then faced by having to import food after a long drought severely reduced agricultural output.
Nevertheless, while these reforms appear rather typical on paper, it must be appreciated that Asad had to play a skilful balancing act in managing the tensions in the all important ethnic element of the equation. Inviting Sunnis to resume a role at the commanding end of the economy, even if limited, was an affront to the Alawite elite that relied on Asad. The revolt of the Muslim Brotherhood in Hama, which ended with the ruthless extermination of 20,000 of its inhabitants in 1982 by the armed forces, was largely a revolt by the Sunnis against the Alawite minority and was supported by the Sunni business middle class of Damascus. It was this continued threat of reprisal against Sunnis that also gave the government some room for reform. Hama had sent a clear message of what just how much dissent would be tolerated. The Sunnis were allowed to take part in the economy but only so long as the Alawites dominated. The balance that is needed in managing the ethnic tensions is a continuing factor in slowing the rate of reform today.
Bashir al-Asad cannot move too rapidly in order not damage his Alawite basis of support, which is the only real support he can count on, given the nature of his succession and the continued reliance on a repressive security apparatus to sustain him. Asad the younger, a British trained ophthalmologist, was a reluctant choice as successor and lacks the political determination to engage the kind of massive violent reprisals that his father, a military man, showed with Hama. In many ways, Bashir al Asad is a prisoner of the strong minority that relies on the perpetuation of the Asad legacy for its survival. Reforms will, therefore, inevitably be gradual as he faces both the internal threat of dissent, from his own Alawite sect as well as from the Sunni majority, as well as the external one posed by increasing tensions in the region and continued threats from the United States.
Bringing Globalization to Syria
Political risk is doubtless very high. Meanwhile, support from the Gulf States is declining and the unemployment rate, which Asad's father was so concerned in reducing, is now estimated at 25% to 30%. The political and likely military tensions in the region mean that military spending will be sustained and even increased in order deal with the multiple threats. This will free up even less money for social welfare support, which would in political terms allow Bashir al Asad to consider increasing the rate of market reform. A solution to this problem could come in the form of greater foreign involvement in the Syrian economy while increasing efforts to integrate it in the global economy. In other words bring Syria into globalization. Regional efforts promoted by the European Union such as the Mediterranean free trade zone which has been proposed for 2010 are welcome by Syria.
Indeed, Syria maintains very good relations with Italy and Spain, two countries that are sure to play a very significant role in a more open Syrian economy. Hoping to generate foreign investments, Bashir al Asad has announced the privatization of the banking sector in 2002 ending forty years of the exclusively government run financial system. The problem remains, nevertheless, that the legal system is not designed to protect the accumulation of capital; there being no mechanisms in place to protect it institutionally. Any serious effort to invite foreign investment will have to address this fundamental lack of financial structures, which is currently keeping Syria out of the fold of globalization.
The current instability of the region may also play to Syria's advantage in terms of restructuring the financial system. Lebanon's advanced financial services and its long trading traditions have long played a role akin to what Hong Kong has done for China. In the eventuality that Lebanon became fully absorbed by Syria as part of a regional re-stabilization that also include a peace treaty between Israel and the Arabs, the economic prospects for Syria and the region would improve dramatically. The chances of this happening in the short term are extremely slim, barring a miracle - in a region long famed for this type of phenomenon - but for the time being such hopes merely reflect how many and how obstinate the obstacles are to balanced and sustainable economic growth.
Update No: 001 - (01/12/03)
Israel Penetrates Syrian Territory
On October 5th, Israel launched an aerial attack against what it claims was a terrorist training camp near Damascus at the Palestinian refugee camp of Ein Saheb. This marked the first Israeli strike into Syrian territory since the 1973 Yom Kippur war. The incident did not provoke any loss of life, but it was very significant in terms of its regional and even global terms given the presence of US troops in Iraq. The attack itself came hours after a woman lawyer, blew herself up at Maxim's restaurant in Haifa, killing 29 people. The message from Israel needs no translation; it has the operational ability to penetrate and strike Syria with impunity and it considers it its own security prerogative to launch pre-emptive attacks as part of its war on terror. America's example in Iraq has clearly fuelled the boldest actions on this front making any calls on Israel's part sound rather hollow. On the Syrian side, and in fact in the wider Arab World, the action has only highlighted the feeling of impotence it faces vis-à-vis Israel. Syria's leadership has admitted harbouring Palestinian militants out of sympathy for the Intifada, but it has also indicated that it has no direct influence. While, many both in and out of Israel have conceded that the strike appeared to be an attempt to raise regional tensions, and draw the Arabs into another confrontation, what was more alarming was the reaction of the United States.
The Reaction of the USA and its Implications for Reforms in Syria
Most of the world condemned Israel's strike in Syria, except for the United States who considers the action the prerogative of the Jewish State in waging its own war against terrorism. It was no surprise then that the United States vetoed the United Nations Security Council resolution deploring the Israeli air attack. This reaction was also read as suggesting that Syria may be facing the same fate as Iraq and the Arabs are powerless to do anything about it. This doesn't bode well for the prospects of reform in Syria. Bashir al Asad was already having to perform a dangerous balancing act in pushing forward reforms, which would allow a greater extent of Sunni participation at the decision making level of the economy, while maintaining his crucial support base among the Alawite military elite.
The 'military' component of that group is perhaps the more unsettling one, as the ease with which Israel was able to strike, and the show of force it represents along with the declared support of the United States, only serves to draw attention to the enormous corresponding weakness of Syria's military which has not benefited from any significant upgrades since the Yom Kippur war of 1973. Al Asad will be pressed to focus more on military spending. The Alawite elite will not survive either a war with Israel or an invasion by the USA from Iraq. In terms of economic reforms, state spending on military equipment - even if Israel and the USA would allow this to happen without some sort of 'preventive' action, would divert the funds needed to maintain the functions of the state as it moves to institute a greater degree of private interest in the economy.
Moreover, the attack will surely prompt a tightening of the security apparatus making even mild political reform very difficult. As for the peace process, Syria was initially attracted to it in the hopes of substituting the support of a powerful patron such as the Soviet Union, which was collapsing just as the first Gulf War was ending, with the United States. Hafez al Asad was hoping to play a brokerage role and receive the necessary leverage from the United States to get the Golan Heights back, thus scoring an important political victory both in Syria and within the wider Arab World. As noted in the background report, the international prestige that Syria acquired during the Israeli-Arab peace process (when it was in fact a real process, unlike now), allowed him to pursue liberalizing reforms without having to bother as much with the political element. Asad the younger will not have that luxury. The United States are now ruled by a different set of priorities and Syria is but one short step away from 'Axis of Evil' status. It wasn't long after the so-called end of the War in May that Paul Wolfowitz, Donald Rumsfeld's chief deputy, suggested that Washington should take action against Iraqi officials that had taken shelter in Syria.
Sanctions against Syria
The appointment of David Wurmser, a close associate and ideological partner of the super-hawk former chairman of the Defence Policy Board, Richard Perle, in mid-September to the staff of Vice-President Dick Cheney has been interpreted by US political analysts as a further move to the right in international affairs with the neo-conservative agenda gaining more momentum in Washington. In a related development, the House of Representatives approved a bill that would impose new economic and diplomatic sanctions against Syria. The call to apply sanctions has been invoked by the need to punish, as alleged by Washington's neo-conservative establishment, Syria's complicity in allowing Islamic militants to cross its borders into Iraq, as well as its alleged financial and logistical support for their actions inside Iraq against the American occupation forces.
The Syria Accountability Act itself provides for terminating diplomatic relations with Damascus, as well as economic sanctions aimed at banning the export of military items and goods with both civilian and military uses. While food and medicine exports would still be permitted under the Act, it would preclude any form of American investment in Syria and freeze Syrian assets. On the surface the trade sanctions are not significant as the value of trade between the United States and Syria is modest and amounts to about $300 million per year. However, the Act - if passed into law, it has yet to be signed by President Bush - officially represents the Bush administration's threatening stance toward Damascus, ostensibly veiled as an exhortation for Syria to change its ways.
As with similar legislation against Libya and Iran, the amount of trade itself is not the issue. The problem remains that companies and governments outside the United States will be less inclined to invest in Syria in the face of Washington's pressure. In all likelihood the President may hesitate about signing the Act in full. Syria has cooperated in America's war on terror after all, and as with many governments in the MENA region, the Syrian government fears Islamist politics, not least as a minority considered to be heretic by most Muslims as are the Alawites. Syria's devastating response to the Islamist insurrection in Hama in 1982 sent a clear message to anyone hoping to succeed in challenging the Alawite minority.
A Canadian story adds hard evidence of cooperation between Washington and Damascus in the War on Terrorism. A Canadian citizen of Syrian descent, Maher Arar was deported to Syria by American authorities in September of 2002. The Canadian government has not fully explained the circumstances and evidence that compelled them to advise US authorities about Arar; nonetheless, the US flew him to Amman and then arranged for his deportation to Syria where the man was inevitably taken in to custody and routinely tortured, only to be released a year later. The story is still being investigated and US Attorney General William Ashcroft has refused to indicate the reason for the deportation. More revelations about this ongoing story might reveal more rather than less cooperation between Washington and Damascus.
Syria and the European Union
If relations between Syria and the United States are souring, they are moving forward with the European Union in the context of the Barcelona process, an inter Mediterranean and European economic free-trade association agreement in which Syria is a very enthusiastic participant. Continuing discussions that have seen important progress in mid October and are expected to end in an agreement by December 15th in Damascus, have focused on economic cooperation and Justice and Home affairs. The topics that are pending involve the usual thorny issues, in Euro-Syrian cooperation, concerning the extension of democracy and respect for human rights. Nonetheless, Syria has complained that the EU has done little to facilitate its entry into European agricultural markets and about the quotas imposed on Syrian products generally. The signing of an agreement will likely involve a compromise between extending more liberal reforms in Syria in return for more trade concessions from the European Union. The adoption of the association agreement provides for a twelve year easing of trade restrictions culminating in a free-trade zone at the end of that period.
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