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  2002 2001 2000 Ranking(2002)
Millions of US $ 21,900 19,500  17,896 64
GNI per capita
 US $ 1,130 1,040     950 131
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Bashir al-Asad

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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. 

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Update No: 003 - (01/02/04)

Trouble ahead
Despite the repeated warning and innuendoes by the United States after the initial phase of the War on Iraq was over last April, Syria struggled but seemed intent on implementing much needed economic reforms. As outlined in previous updates and in the background report, economic reforms in Syria are wrought with political implications and are approached delicately. If the last months of 2003 gave some reason for optimism, 2004 has started with a series of ominous warnings and signs for the Ba'thist regime of Bashar al-Asad. Syria has come under strong pressure from the United States, while Israel has been testing its resolve by prompting border skirmishes along the border and bombing Hezbollah positions in Southern Lebanon. Having captured Saddam Hussein and secured unprecedented cooperation from Libya, a country, which will likely be removed from the list of rogue states, the United States has been focusing on Syria and its regime. So long as this pressure continues, al-Asad will not be able to carry out any of the intended and ambitious economic reforms, as national security considerations from internal as well as external threats to the survival of the Ba'ath regime will strengthen the old vanguard of the party. US Senator Bill Nelson, who met with Syrian President Bashar al-Asad in early January in Damascus, "came away with the impression that Asad is finding it difficult to rule Syria and is under the heavy influence of the old guard in the Ba'ath regime" as reported by Israel's HaAretz . This, suggested the paper, renders Asad unable to take decisions and implement them. 
Given the theme of the Bush administration, even if its former morally charged assertions about them have waned in recent weeks, in eliminating weapons of mass destruction - WMD's - the US has been pressuring Syria to disclose their arsenals and dismantle them. The fact that Col. Qadhafi in Libya has agreed to full weapons inspections and formally and publicly renounced such WMDs, whether or not he really had them in the first place, has placed additional pressure on President al-Asad to comply. Meanwhile, the continuing tensions with Israel and the need to show a strong position within the Ba'ath ruling circle only serves to increase American suspicions concerning Syria's military capacity. Al-Asad neither refuted, nor admitted, that Syria had stockpiles of WMD. He implied, rather, that Syria would comply with the United States' request on the condition that Israel should do the same and destroy its own nuclear and chemical-biological arsenals estimated to be between one and two hundred warheads. He also said that Libya's decision to dismantle was correct, but only as a first step that would lead to the disarmament of the entire Middle East and North Africa, Israel included. Al-Asad cited the recent attack on the former Palestinian training camp and the continued occupation in the Golan Heights as evidence of its need to maintain a strong defence capability. Moreover, Syria formally complained to the UN Security Council that Israel was planning to increase the number of Jewish Settlers in the Golan Heights, and this only a few weeks after Syria offered its willingness to resume peace negotiations with Israel based on the Oslo accords. 
However, Al-Asad also showed his willingness - deemed necessary to maintain as cordial as possible relations with the United States - to cooperate with US demands about preventing the proliferation of weapons and fighters from Syria to Iraq by deploying joint US-Syrian patrols along the entire length of the border. The US, for its part has declined the opportunity to offer Syria the proverbial carrot and is using a blunt 'sticks' only strategy. The US and Britain have certainly agreed to the notion of a WMD free Middle East, but implied that Syria, as a rogue state, must disarm first, and, by implication, Israel will be last. This has not detracted Syria from seeking alternative diplomatic channels as it scrambled to secure international backing to protect itself against the United States' aggressive policy. Ironically, American officials and Secretary of State Powell have indicated that Syria has not made any efforts to reform since Bashar took over form his father in the spring of 2000. Of course, their policy vis-à-vis Syria is not helping Asad implement those sought after reforms. In January, the most significant initiative in this regard was President al-Asad's visit to Turkey. 

Important visit to Turkey
The visit had important geo-strategic significance and implications. It was coordinated with Syria's ally Iran. The three countries presented their view of US policy in Iraq and stressed the crucial need for the US to maintain a unitary state in Iraq and not to fragment it in three distinct units or mini-Kurdish, Shiite and Sunni mini-states. All three countries have large Kurdish minorities, Syria's is about 20% of the population, larger than Al-Asad's Alawite community. They are especially concerned with the calls for autonomy, or even independence, from their respective Kurdish minorities that would inevitably result from such a break-up. The three states expressed their concern as they fear that the US is being pressured by Israel to secure a weakened and fractured Iraq. Meanwhile, the three states also offered conciliatory statements suggesting that they can help the US stabilize Iraq, if it is ready and willing to recognize and support their security interests. Prime Minister Erdogan of Turkey, for his part, was careful to maintain a balance between Turkey's relations with Israel, the United States and the Arab world, even while distancing himself from Sharon's policies towards Syria and the Palestinians. In terms of bilateral Turkish-Syrian relations, the thorny issue of Alexandretta, an Ottoman sanjak in Syria that was absorbed by Turkey at the end of World War II, was not raised; nor was the issue of the irrigation projects on the Turkish side of the Euphrates river, which is depriving Syrians of a large share of water. The two sides came close to war in 1998 over this issue. 

Fears about US Hawks and Israeli policy. And a Syrian Opposition Abroad
However, there is little Syrian optimism of cooperation from the US, as long as the White House pursues the Hawkish approach to foreign policy many of its advisors have been proffering. Indeed, a book that was released in December of 2003, An End to Evil by former security advisor Richard Perle and speech writer David Frum, the infamous creator of the 'axis of evil' concept, suggests that the United States should pursue a very aggressive policy towards Syria, Iran, as well as North Korea and Cuba - even France in fact. They also indicate that there are strong divisions within the White House itself with Vice President Dick Cheney wanting to pursue the hawkish line, and the State Department arguing for a softer and more cautious path. It does not help, from Syria's point of view, that the Washington hawks, many of them colleagues and associates of Perle and Frum at the American Enterprise Institute, are also friends and allies of Israel's Prime Minister Ariel Sharon. They have declared, clearly and unabashedly, in the book, the overthrow of Saddam Hussein was but a first step in an ambitious project to re-shape the entire Middle East. It is difficult to see how such visions will enable the very delicate reform process in Syria from proceeding, while leaving it apprehensive of both Israel and the United States. The fact that there will be presidential elections in the United Sates and Prime Minister Sharon faces personal corruption troubles at home that may put him out of power, only adds to the uncertainty. 
While, there have not been any aggressive actions against Syria so far from the United States, Defence Secretary Donald H. Rumsfeld is said to be pushing for military action against Syria, though not a full-scale invasion. His office has already devised plans for punitive air strikes and cross-border incursions by U.S. forces, according to three officials as reported by the London based "Al-Sharq-Al-Awsat" Newspaper. After the Israeli incursions in Lebanese territory to attack Hezbollah positions, Colin Powell, predictably, accused the latter of having provoked the attack and added a warning to Syria, saying that support, vocal or material, for 'terror' groups would be considered an act that threatens peace in the Middle East. 
As if President Al-Asad had not enough to contend with, a Syrian "opposition" group led by a Washington based Syrian businessman Farid N. Ghadry met officials in the US capital announcing that the Reform Party of Syria (RPS), a coalition of Arab, Kurdish, and Christian parties has urged its constituents to take action for "democracy" in Syria. They are uniting under the banner of the Syrian Democratic Coalition. He challenged the view that policy in Damascus can be changed through peaceful means, and advocated an overthrow, with US help, of the Ba'ath led government. Ghadry seems to be following in the footsteps of the likes of Ahmad Chalabi, who became a close associate and protégé of Richard Perle and Security Adviser Paul Wolfowitz. 

In the political climate described above, it seems rather anachronistic to mention that while its future becomes ever more uncertain, on January 7th, Syria opened its first private bank in Syria in forty years thanks to BLOM of Lebanon. It is the first private bank to operate in Damascus and Syria since the early 60s. The Bank will be known by the name Bank of Syria and Overseas (BSO), also known by its French acronym, Banque de Syrie et d'Outre-Mer. The first branch of BSO is located in al-Hariqa, in the heart of the old souks of Damascus, suggesting that the bank will focus primarily on services directed at the Syrian business community. Total capitalization of BSO amounts to SYP 1.5 billion (around USD 30 million). BLOM is holding 39% of the shares; IFC 10%, 13% is in the hands of a number of prominent Syrian private investors, including Mr. Rateb al-Shallah, while the balance 38% was purchased by other private Syrian shareholders through the initial public offering. Meanwhile, a group of British investors will be building a new tourism and leisure resort on the Syrian coast following the signing of an agreement in that respect between the municipality of Tartous and a number of Syrian and British private investors. Antarados, the executor of the project is a joint stock company with a capital of SYP 10.3 billion (USD 200 million). The partners are the Municipality of Tartous (30%) which is contributing by giving the land on which the resort will be built, the Wahoud Group Ltd (UK-10%), Junada (25%), Dr Wahoud (as an individual-10%) and Carwood Investment representing other interests, such as Hardener Tailor, a real estate investment company (25%). Besides his own personal contribution and that of his group (The Wahoud Group), Mr. Mohammad Wahoud is also a shareholder in Junada. The Antarados project was officially approved and licensed by the Higher Council of Tourism. The resort will comprise an area of 186,000 sq meters and involves the development of 1.5 km of the sea front of Tartous (Corniche), including a complex which will consist of a 5-star 200-room hotel (with initial agreement with Intercontinental Hotels as operator), a 4-star 200-room hotel (with initial agreement with the Holiday Inn as operator), 100 residential apartments, 200 chalets, a theme village including 10 different clubs, a green park, a marina, and a tourist village with cafes, shops and restaurants. It will be interesting to see whether the geopolitical climate will make this investment a viable one. 

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Israeli President Invites Syrian Leader for Talks

Israeli President, Moshe Katsav, has invited Syrian President, Bashar al-Assad, to visit Jerusalem for "serious negotiations" with Israeli leaders.
Negotiations between the two countries, technically still at war, collapsed in 2000. But Assad has recently urged the United States to help revive the talks.
"I invite the president of Syria to come to Jerusalem and meet with the heads of the state and hold serious negotiations," Katsav said on Israel Radio.
Katsav's office is largely ceremonial, but it was the strongest sign from Israel of a willingness to talk since Assad said that he was keen to resume negotiations.
There was no comment on the invitation from the office of Prime Minister, Ariel Sharon, who said a day earlier that Israel was ready for peace talks only if Damascus halted support for "terrorist agents."
There was no immediate reaction from Syria to Katsav's invitation and it was not clear if the Israeli president had made the overture through formal channels.
Katsav said Israel was not clear on Syria's opening negotiating position but that if Assad was seriously willing to start talks from "point zero," he should go through diplomatic channels and even invite Israeli leaders to Damascus.

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