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Key Economic Data 
  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: 004 - (01/03/04)

A more peaceful breeze is blowing
More than at any other period in recent history, Syria has been facing and perceiving isolation and hostility. As previously discussed here, Israel, its traditional enemy since 1948 and occupier of the Golan Heights has been threatening it from the south and demonstrated its willingness to use its military strength by the raid on an abandoned guerrilla training camp near Damascus. Meanwhile, the United States are acting like the proverbial elephant next door, threatening it from Iraq and playing a diplomatic game to coerce its behaviour by facing the threat of the age, regime change, and possible war. Meanwhile, Syria has been working to strengthen its ties with strategic neighbours such as Turkey, a US ally, facing such thorny issues as the Kurdish question, and water. Before Christmas, President Bush had threatened to use sanctions to force Syria to toe the line. There had been frequent reports of Arab guerrillas and Islamic militants crossing Syrian borders to penetrate Iraq and contribute to the daily dose of carnage inflicted by bombs against both civilian and military targets. Moreover, regional developments have also added difficulties.
Libya's sudden and rapidly improving relations with the West and questions over Iran's nuclear capability, and its signing of the Nuclear non-proliferation treaty, have placed additional constraints on Syria's military. Iran is Syria's most important strategic ally, but its own domestic issues marked by a highly controversial election, has left a weakened reformist camp, even as it faces international pressures which suggest it cannot do much to support Syria. Quite apart from any real threat Syria has posed militarily since the collapse of its primary supplier of armaments and strategic advice, the Soviet Union, in 1991, the US has been pressuring Syria to abandon its own 'weapons of mass destruction'. Meanwhile, Syria has indicated that Israeli threats demand adequate responses and deterrence and that it will honour such requests only as part of a wider agreement to free the whole Middle East from such weapons, starting with those in Israel's possession. The situation, as the January and February updates reported was very tense. 
However, very quietly during the month of February, the tensions that had been building since the later months of 2003 on Syria have been loosening. There seems to be a quiet change of policy in Washington itself. The 'Hawks' are no longer dictating policy in Washington. Such figures as Paul Wolfowitz, Richard Perle and even Vice President Dick Cheney - rumours are growing that he may be dropped from the Republican presidential ticket in 2004 - have had less influence. Richard Perle, who co-authored a controversial book "An End to Evil" published in December 2003, had been advocating regime change just about everywhere and certainly in Syria and even Libya. Perle was also one of the chief architects of the drive to invade Iraq and an enthusiastic supporter and purveyor of damning intelligence against Iraq and other Middle Eastern states possessing weapons of mass destruction. The US administration has evidently grown a little more cautious of Perle and others pushing his ideas, as questions over the validity of intelligence leading to the war on Iraq have become more prominent both in the United States, as in the United Kingdom, in many ways embarrassing their leaders. Indeed, in the middle of February it was announced that Richard Perle, who had already been implicated in a variety of contentious matters with his Trireme Partners, resigned completely from the Defence Advisory Board. 
This is very significant as far as policy toward Syria is concerned. For starters, it means that any military action against it will have to be backed up by more credible intelligence than what Perle and others associated with him- i.e. Charles Krauthammer, Doug Feith- had been able to supply in the case of Iraq. As more reasonable and less ideological thinking replaces the adventurism, the US administration may even come to realize pragmatically that placing conditions such as democratization and economic liberalism on Syria will, as amply discussed in the Background (above), place pressure on the Alawite regime, which has proven so effective in dealing with the Islamist threat. It is this aspect of Syria, which has been able to maintain a significant degree of cooperation with the United States. On the other hand, Secretary of Defense Donald Rumsfeld remains hawkish and on a recent visit to US troops in Baghdad had little positive to say about Syria, again stressing that country's role as a funnel for anti-American militants crossing over into Iraq.

Syrian Diplomatic Efforts
Indeed, Bashir al-Asad has done his best to quell US pressures, most notably assisting on the gathering and distribution of intelligence on supposed al-Qaida activists and hampering efforts of militants from passing into Iraq - even if until very recently, Syria has been facing pressures precisely because of such infiltrations. While the US maintains its concerns, and progress toward settling its disputes with Israel are being announced and dismissed on an almost daily basis, the United States maintains official diplomatic channels with Syria. Syrian Vice President Abdul Halim Khaddam said late in February that Syria had expressed its "readiness to resume peace talks from where they broke off" in January 2000 and said Syria was "still committed to the peace process in accordance with UN Security Council resolutions." After the most recent overture by Syria toward a peace settlement, and a United Nations suggestion that other parties including the United States and France participate actively in resuming peace talks, President George W. Bush was optimistic. He was pleased that Syria's peace overture to Israel was at least very interesting and represented an encouraging sign, even while remaining unclear about Syria's sincerity or intentions.
As with similar statements in the past, however, the Israeli Prime Minister's Office has denied the Syrian reports that Damascus had sent Israel an offer, via Turkey, to renew talks. Bush, on Al-Hurra Radio, an American operated broadcaster aimed at the Middle East, reiterated his demand that Syria cease funding Hizbullah, shut down offices of "terror" groups in its territory and keep its border with Iraq impervious to Saddam Hussein loyalists. Therefore, on the surface the song has not changed much. Nevertheless, a new Syrian Ambassador to the United States was announced and 
Dr. Imad Zuhair Mustafa took oath before President Asad. The significance of the announcement is more than ceremonial, given the fact that the post had been left vacant for years. Similarly, the US Congress ratified a decision for appointing Margaret Scooby as ambassador for the US to Syria. Therefore, while the official line has varied little, even if is slanted in a slightly more favorable direction, the re-establishment of high-level diplomatic channels is an encouraging sign that Syria has probably averted its worse expectations as far as US military actions into its territory are concerned. 
Moreover, Syria has also obtained unofficial assurances from Moscow that Russia will oppose the imposition of unilateral or UN sanctions against Syria. Acting Foreign Minster Igor Ivanov said that there is no justification for either as Syria had confirmed its adherence to joint efforts of the international community in fighting terrorism, and that it had offered satisfactory guarantees that Damascus had not been supporting the militant groups causing concern to Washington. As it stands, US sanctions may be imposed in May, unless Secretary of State Powell is able to confirm that Syria has been making progress in dismantling weapons and curtailing support for militant groups. It is doubtful that a breakthrough such as what occurred with Libya in December 2003 will be possible. Cynically speaking, Syria does not have sufficient oil reserves and it is too close and hostile to Israel for such developments to occur suddenly.
However 2004 is election year and barring any further large scale terrorist actions against US targets and interests, additional military campaigns will be on hold. For his part, President Asad of Syria has been keen to deal with American frustrations by actively fostering international cooperation by meeting with American, French and British visitors, official and private, expressing his wish for better bi-lateral relations. In December 2003, senior official Bouthaina Shaaban went on an unusual seven-state speaking tour across the U.S. to explain that Syria was not a terrorist nation. Her principal task was to foster links with Syrian - Americans (over half a million) and to former U.S. officials, peace activists, scholars and the media. This suggests that Syria understands the value of public relations and may use them to the same - if less dramatic - effect that Col. Mu'ammar Al-Qadhafi of Libya did in December 2003. In late January, Asad met Sen. Bill Nelson, one of 81 Senate sponsors of the sanctions law in Damascus. Nelson reported that Asad was open and engaging, and listened intently.
It may be that some of those techniques have worked in Washington as the Bush administration on 24th February rejected a military plan for increased freedom of action along the Iraqi-Syrian border. The permit was required to allow forces to pursue al Qaida-aligned fighters inside Syrian territory including the possibility of dealing with attacking insurgency camps. The military plan was endorsed by the Defense Department, which is very concerned about the flow of militants across the Syrian - Iraqi border. They have also claimed that the problem has escalated as Syrian officials have been bribed to allow the insurgents to cross the border. The Pentagon considers this flow of armed migrants to be an important source of the destabilization hampering US efforts in Iraq. 

Investments in Tourism and oil
In business news, the tourism industry continues to expand, even as British tour operators, reported last month, have begun planning the construction of a large tourism resort. The Syrian Business Council and the Dubai Chamber of Commerce and Industry (DCCI) in Dubai held an important conference in Dubai in late February. Apart from promoting increased business and trade between the two countries, Dr. Sadallah Agah Al Kalla, the Syrian Minister of Tourism, spoke about the huge investment potential the tourism sector in Syria offers to overseas investors. He explained that Tourism is booming in Syria and that the government considers it a major growth area, encouraging international and local investors to take advantage of the opportunities offered in Syria. The Syrian delegation also stressed reforms in the banking sector and the opening of the first private bank to operate in Syria in decades, and expecting foreign investors to take full advantage of recent financial changes and the opening of the Syrian market. 
Meanwhile, Canadian Tanganyika Oil announced the successful completion of its initial well workover program on the Oudeh Field in Syria, triggering the first incremental production from the field. Incremental production is that amount above a base level of 1063.75 bpd. The Oudeh Field is a large development block located in northeastern Syria containing an estimated 2.4 billion barrels oil in place. Three wells were cleaned up and worked over during this initial program (one in the Shiranish reservoir and two in the Kurachine Dolomite reservoir). One beam and two PCP pumps were installed resulting in an increase in production of approximately 350 barrels above the base level. Further production increases are expected as Tanganika expect to install higher capacity pumps into at least one of these wells over the next few weeks. As the field is fully developed over the next few years (and only if the fields are fully developed), total production levels are expected to reach in excess of 30,000 bpd of oil as determined by independent technical evaluations from Sproule International and Computer Modelling Group. In other oil developments, Syrian President Bashar Asad has approved a contract between the Syrian Oil Company and Veritas DGC Inc. of Texas to conduct seismic surveys off Syria's coast, the Associated Press reported. Should the world read this as a sign that the US will hold off on issuing sanctions in May?

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Syrian oil company signs US$10m deal with Croats

The Syrian Oil Company signed a US$10m contract recently with a Croatian oil and gas company, authorising it to exclusively explore, develop and produce oil in northern Syria over a period of four years, reported New Europe recently.
The contract stipulates that the Croatian company, INA Industrija Naffte, will conduct geological and geophysical surveys and drill two oil wells in Salameya, some 240 kilometres northeast of Damascus, the Syrian capital.
The contract also provides for two extension periods of two years each, during which the Croatian company will conduct earthquake surveys and drill two other oil wells, at a cost of US$11m.
The Syrian government will take 12.5% of the total future oil production, according to the contract.
The contract, signed by Syrian Oil Minister Ebrahim Haddad and INA's executive director, Zeljko Belosic, also provided for a development period of 25 years starting from the date of the first phase of commercial oil production. Syria already produces some 600,000 barrels of oil per day.

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Turkey and Syria to increase annual trade

Turkey and Syria aim to triple their annual trade volume to US$3bn, the head of a Turkish business delegation said after meeting with visiting Syrian President, Bashar Assad. "The amount of trade between our two countries does not exceed US$1bn, I think that it could go up to US$3bn thanks to our common efforts," Rifat Hisarciklioglu, head of the Union of Turkish Chambers of Commerce and Trade Associations, said in Istanbul, New Europe reported recently. 
Hisarciklioglu said Assad, along with his Vice Minister for Economy, Ghassan Abash, had met with the businessmen, promising them he would lower barriers preventing them from investing in and exporting to Syria. "We were delighted to learn that all the bureaucratic difficulties will from here on out be dealt with by one centre, and to learn that Turkish businesses will receive priority concerning state contracts," he added. "We are ready to provide every kind of service," Turkish Foreign Minister Kursad Tuzman told the Syrian leader at the Istanbul Stock Exchange on the third and final day of his state visit to Turkey, the first by a Syrian president.

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