Syria’s new leader Bashar al-Asad faces an uphill battle in addressing Syria’s economic problems, which include (among other things) corruption, political opposition to reform and public sector control of the economy. His task is further complicated by the fact that he must simultaneously consolidate his power base while coping with international political challenges. However, the reform process that started before President Hafiz al-Asad’s death, the new president’s smooth accession to power and his popular support all suggest that for the moment he has the backing needed to carry out limited economic reforms and institutional adjustments.

At the 9^th Regional Congress of the Ba'th Arab Socialist Party, which commenced 17 June, Dr Asad was proclaimed the "leader of the party and the people," according to the Syria Times on 18 June. (He had already been promoted from colonel to lieutenant general and named head of the armed forces, and is expected to be named president by the National Assembly on 26 June.) "There were certain power struggles, but up to now it seems that the people that support Bashar have control," one Damascus-based Western diplomat told MEES. "The whole thing was professionally managed. While there were many occasions when things could have gone wrong, there were no signs of disunity. The machine was perfectly oiled and it worked well, which shows there is a consensus among the key players behind Bashar. The fact of course is that it is very complicated to settle power and to start economic reform while coping with the challenges of the international scene."

Dr Asad, however, still faces formidable obstacles, including potential threats from the 'Alawi political elite, especially if and when he embarks on a serious anti-corruption campaign. "Bashar may try to attempt economic reforms, but it will be difficult to stay in power," Patrick Clawson, research director at Washington’s Institute for Near East Studies, told MEES. "I am not ready to believe that he is going after the most corrupt unless he goes after the 'Alawi political elite. Economic reforms will have quite a deleterious effect on the political community and are the most dangerous because they are the most likely to get him bounced out of power." In addition, he needs the backing of his powerful brother-in-law General 'Asif Shawkat, and it is unclear, according to experts, what sort of support he will receive from his father’s associates, despite the unity displayed following the death of President Asad.

Despite the uncertainty about his ability to carry out thorough economic reforms, Dr Asad and his supporters have successfully undertaken a limited number of economic changes while dealing with his political opponents. "The main challenges have been neutralized," Patrick Seale, a leading expert on Syria, said to Bridge News on 12 June. "Members of the old guard have been phased out." In addition, three key economic developments, which were set in motion before President Asad’s death, underline Dr Asad’s limited success so far in changing the country’s economic conditions. These are the speed with which the Syrian budget for 2000 was approved, the anti-corruption campaign that forced some senior political figures out of office and the new investment laws. Dr Asad also picked a majority of the government’s new members in March.

Surprisingly, the Syrian Government passed the "balanced" budget for 2000 earlier than usual. On the face of it this is not a huge achievement, but given that most budget reports are usually released after the fiscal year ends, it is a step forward. "The fact that the state budget for the year 2000 was issued at an early date is of great importance in terms of implementation," Syrian Finance Minister Muhammad Khalid al-Mahayni said in an interview with the Syrian Government paper al-Thawrah on 27 May. "According to the government’s directions, the focus was on implementing the plans included in the budget, activating the market and achieving the necessary developments." The 2000 budget received parliamentary approval on 11 May, a significant improvement from the previous year when the 1999 budget was submitted to parliament on 28 December 1999 and approved on 18 January 2000.

Despite early parliamentary approval, the budget looks much the same as it did in 1999, increasing 7.87% to S£275.40bn ($5.99bn) in 2000 from S£255.30bn ($5.55bn) in 1999 (see table below). "The increase [in government expenditure] is to meet targets decided by the government, including the needs for national defense, agricultural and industrial projects and the strengthening of infrastructure with new projects in every province," Prime Minister Mustafa Miro said on 11 May.

Expenditure on total government services, including justice, national security and education, increased by 4.14% to S£150.06bn ($3.26bn) for 2000, up from S£144.09bn ($3.3bn) in 1999. Spending on national security increased 3.58% to S£49.30bn ($1.07bn) in 2000, up from S£47.59bn ($1.03bn) in 1999, while expenditure on education increased 10.75% to S£4.82bn ($105mn) from S£4.35bn ($94.6mn) in 1999. Expenditure on agriculture, forests and fisheries rose by 6.27% to S£26.12bn ($567mn) from S£24.58bn ($534mn) the previous year, while investment in infrastructure increased by 8.29% to S£21.97bn ($478mn) in 2000 from S£20.29bn ($441mn) in 1999. "With respect to investment projects, S£132bn ($2.9bn) were allocated to them, including S£1bn ($21.7mn) to support working capital," Mr Mahayni said. "These funds make up 47.9% of the state budget. This is a high and important percentage in regard to the budget credits. It underlines that the state budget for 2000 has concentrated on the development process and shows that efforts are under way to enhance infrastructure, support economic development and activate the market."

Revenues across the board are projected to rise with those coming from taxes and duties up 3.9% to S£85.91bn ($1.87bn) in the 2000 budget, compared to S£82.69bn ($1.80bn) in 1999. Revenue from services on property is projected to increase by 30.85% to S£25.40bn ($552mn), up from S£19.41bn ($422mn) in 1999, while miscellaneous revenues and the surplus on state activities are also set to rise according to the budget.

However, Syria’s upbeat revenue increase projections for the current fiscal year stand in contrast to what analysts describe as a decline in structural fundamentals. As a European Union official in Damascus pointed out to MEES, "The system under which Syria has lived for the past 10 years was autarkic and the investment environment lacked incentive. These distortions were financed by oil, but now Syria can’t afford this because the country’s need for school services, medical services has increased, while oil production has not." Notwithstanding the recent upturn in oil revenue as a result of the increase in oil prices, the need for a structural overhaul of the economy is still apparent even amongst some of Syria’s parliamentarians. "The Syrian economy has reached a dead end," Riad Saif, a member of parliament, said in unusually candid remarks reported by the Lebanese daily al-Safir on 17 June. "We have drained our government organizations and brought them to a state of bankruptcy. We have created conditions of disguised unemployment by over-employment in the government sector. We have lacked accountability and control, and we suffer from monopoly...the health and education services have suffered over many years."

The new president’s key political supporters and ministers recognize that Syria faces a major unemployment problem created by government ineptitude which cannot be solved without increased investment. "Reforms are needed if Syria is to face the challenges of globalization," the EU official said. "We think that with the new government and the new generation in power, there will be a more energetic approach to economic reform." Over the last three to four years, the government has become increasingly aware of the serious economic challenges that face the country and this constitutes a good starting point for reform. According to Mr Mahayni, "the other point on which the budget concentrated was creating 92,322 job opportunities at a total cost of S£5.44bn ($111mn). The credits of these funds in the state budget were allocated to the administrative sector, the public sector and investment projects."

The government of Prime Minister Mustafa Miro has also undertaken a campaign to stamp out corruption. On 28 May, Syria’s finance minister froze the assets and properties of former transportation minister Mufid 'Abd Allah, pending the outcome of his trial on corruption charges. The decree also covered the assets of the minister’s wife and children. In addition, former-Prime Minister Mahmoud Zu'bi, who recently committed suicide, faced extensive corruption charges, while several junior officials were removed from office for similar reasons.

In addition, the government has enacted much-needed legislative reforms. "Syria has to modify its economic system," said the EU official. "There are various laws which are a serious disincentive to investment and the whole system of economic management has to be improved." Recently, Syria introduced a series of decrees, most notably Decree No 7, to stimulate investment in the country. Decree No 7 "provides for additional advantages, including special exemptions for projects established in remote governorates," Mr Mahayni said. "In addition to that, Decree No 7 tackled many issues with respect to securing land for Arab and foreign investors, who can own the property. It also tackled the issue of the establishment of joint stock companies and the reduction of their tax burden and exempted the profits of the companies affiliated with holding companies from income tax" (MEES, 22 May). The government has issued decrees amending Law No 13 to fight smuggling, Law No 37 on economic sanctions and Law No 24 relating to currency issues. "Here I would like to assert that amendments to the Investment Law No 10 and to Law No 24 provide a suitable environment to encourage investment in Syria," Mr Mahayni said.

The legislative changes, plus recent attempts to improve the investment climate in Syria, point to a recognition by the Syrian Government that changes are needed. "We also noted that Dr Bashar has an interest in EU-Syria relations," the EU official said. "In particular, we feel that Bashar is interested in the kind of support that can lead to economic modernization and institutional reform. Our view is that it is a process that has to be gradual but has to start as early as possible. Of course, we are aware, and we are sure that the present government is aware, that to start reforms of this type will provoke resistance and opposition." According to most observers, Dr Asad and his supporters will have to carry out new policies with caution, because it is important to maintain consensus until the new president’s power base is secure. Despite these changes in legislation, the government’s early approval of the budget and the anti-corruption campaign, the public sector is still expected to continue to dominate the economy albeit alongside –an increasingly vocal acknowledgement of its private sector counterpart. As a Syrian cabinet minister told AFP on 19 June, "measures to encourage private investment will be taken under the strict leadership of the public sector, which will continue to play a leading role."

Syrian Budgets: 1995-2000

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