Country Report 4Th Quarter 1997 © the Economist Intelligence Unit Limited 1997

COUNTRY REPORT

Syria

4th quarter 1997

The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group.

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Contents

3 Summary

4 Political structure

5 Economic structure

6 Outlook for 1998-99

9 Review 9 The political scene 14 Economic policy and the economy 16 Oil and gas 18 Agriculture and mining 19 Industry 20 Transport, communications and tourism 21 Foreign trade and payments

23 Quarterly indicators and trade data

List of tables

9 Forecast summary 23 Quarterly indicators of economic activity 24 Trade with major partners

List of figures 9 Gross domestic product 9 Syrian pound: exchange rate

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997

Syria 3

October 14, 1997 Summary

4th quarter 1997

Outlook for 1998-99: Hafez al-Assad will remain in control of Syria and Lebanon for as long as his health holds, but his position in the conflict with Israel will remain weak and his options for initiating action within the region will be limited. Investment in oil and infrastructure will keep the economy expanding, but annual GDP growth will remain below 4% pending more decisive action in favour of economic reform. Increases in private transfers and services income will offset the impact of lower oil and cotton prices on export earnings, keeping the current account in surplus.

The political scene: Fighting has escalated in south Lebanon between the Syrian-backed guerrilla movement, Hizbullah, and Israeli forces. Madeleine Albright’s first visit to the region has done little to spur on peace talks with Israel. Relations with Iraq have deepened, with improved transport links and trade and transit deals. The president’s son is taking on wider responsibilities.

Economic policy and the economy: The government has said it will speed up economic reform, but without giving details or a timetable. It has devalued the pound and moved to calculate its budget at the higher “neighbouring countries” exchange rate.

Oil and gas: Details of the government’s exploration deal with Elf have been released, and an Irish firm, Tullow, has started production at the Kishma field. The threat of US sanctions has contributed to a government rethink on a gas processing deal with Conoco.

Agriculture and mining: Cereal production is down because of poor weather earlier in the year. Phosphate output is scheduled to double by 2000.

Industry: Construction of a 1,065-mw power plant at Aleppo is almost complete and other upgrade projects are planned. The government is to build a new sugar factory at Homs and the Japanese have begun a study on the textile industry.

Transport, communications and tourism: Payments for six new Airbus aircraft have begun and bids to increase telephone line capacity are being evaluated. Jordanian tourism companies have been blacklisted.

Foreign trade and payments: The government is looking to a trade group within the region as a step towards joining the WTO. It has agreed to pay off its debt arrears to the World Bank.

Editor: Naomi Sakr All queries: Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 4 Syria

Political structure

Official name Syrian Arab Republic

Form of state Socialist republic

Legal system Based on the constitution of 1973

Legislature 250-member Majlis al-Shaab (People’s Assembly) directly elected for a four-year term

Electoral system Universal adult suffrage

National elections Due by 1998 (presidential); 1999 (legislative)

Head of state President, directly elected for a seven-year term. The president appoints the vice-presidents, the prime minister and the Council of Ministers. Hafez al-Assad, who was elected president in March 1971 and re-elected in 1978, 1985 and 1991, holds the posts of commander-in-chief of the armed forces and secretary-general of the Baath Party. Vice-presidents: Abdel-Halim Khaddam, Rifaat al-Assad, Zuheir Masharka

Executive Council of Ministers headed by the prime minister. Its members are drawn from the Baath Party and its partners; last reshuffle in June 1992

Main political parties Seven parties form the ruling National Progressive Front (NPF): Arab Socialist Baath Party; Arab Socialist Party; Arab Socialist Unionist Party; Communist Party; Syrian Arab Socialist Union Party; Unionist Socialist Democratic Party; Union Socialist Party

Prime minister Mahmoud al-Zubi Deputy prime minister Mustafa Tlas Deputy prime minister for economic affairs Salim Yasin Deputy prime minister for social services Rashid Akhtariani

Key ministers Agriculture & agrarian reform Assad Mustafa Communications Ridwan Martini Construction Majid Uzzu al-Ruhaibani Culture Najah al-Attar Defence Mustafa Tlas Economy & foreign trade Mohammed al-Imadi Education Mohammed Ghassan Halabi Electricity Munib Asaad Saim al-Daher Finance Khaled al-Mahayni Foreign affairs Farouq al-Shara Health Mohammed Iyad al-Shatti Higher education Salha Sankar Housing & utilities Husam al-Safadi Industry Ahmed Nizameddin Information Mohammed Salman Interior Mohammed Harba Irrigation Abdel-Rahman Madani Oil & mineral resources Mohammed Maher Jamal Planning Abdel-Rahim Sabayi Social affairs & labour Ali Khalil Supply & internal trade Nadim Akash Tourism Danhu Daoud Transport Mufid Abdel-Karim

Central Bank governor Mohammed Bashar Kabbara

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Economic structure

Latest available figures

Economic indicators 1992 1993 1994 1995 1996a GDP at market prices S£ bn 371.6 413.8 496.5 552.4b 695.2b Real GDP growth % 10.6 6.7 7.6 3.6b 5.0 Consumer price inflation % 9.5 11.8 20.0 22.0a 20.0 Population m 12.96 13.31 13.88 14.37 14.88b Merchandise exports fob $ m 3,100 3,203 3,329 3,858 4,298b Merchandise imports fob $ m 2,941 3,476 4,604 4,001 4,516b Current account $ m 56 –579 –791 367 285 Total external debt $ bn (Dec) 19.0 20.0 20.6 21.3 22.5 Total debt service paid $ m 305 283 398 293 501 Exchange ratec S£:$ 11.225 11.225 11.225 11.225 11.225

October 10, 1997 S£45.00:$1d

Origins of gross domestic product 1995b % of total Components of gross domestic product 1995b % of total Agriculture 20.7 Private consumption 68.1 Mining & manufacturing 28.5 Public consumption 14.3 Building & construction 2.8 Gross fixed capital formation 15.6 Trade (wholesale & retail) 18.5 Exports of goods & services 23.1 Transport & communications 11.6 Imports of goods & services –21.1 Finance & insurance 4.7 GDP at current prices 100.0 Government services 11.7 Social & personal services 1.5 GDP (at 1985 prices) 100.0

Principal exports 1995b % of total Principal imports 1995b % of total Petroleum & petroleum products 62.5 Manufactured goods 31.8 Manufactured goods 16.8 Machinery & equipment 31.6 Food & live animals 11.6 Food & live animals 13.7 Total incl others 100.0 Chemicals 10.2 Total incl others 100.0

Main destinations of exports 1996 % of total Main origins of imports 1996 % of total Italy 17.5 Italy 8.1 Germany 14.0 Germany 6.2 France 9.6 South Korea 4.9 Turkey 9.3 France 4.5 Lebanon 6.9 Japan 4.5 Spain 6.0 USA 3.8 Saudi Arabia 5.3 UK 2.6 a EIU estimates. b Official estimates. c Official rate. d Commercial rate.

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Outlook for 1998-99

The regime faces few Provided he does not succumb to any of the ailments which have afflicted him internal rivals— in the past, Syria’s president, Hafez al-Assad, will remain the unchallenged master of Syria for the duration of the EIU’s two-year forecast period and is likely to wield ultimate power over Lebanon as well. The presidential election due to take place in 1998, at the end of Mr Assad’s current seven-year term, will be a routine affair and the Muslim Alawi regime which he heads will keep a firm grip on the reins of power, mainly through a myriad of security services. But the regime is not friendless. It commands the loyalty not only of the minority Alawi community but also of many leading Sunni Muslims who subscribe to its pan-Arab, secular, ideology. The government’s socialist outlook cuts across sectarian divides as, if nothing else, it remains determined to keep most people in work, even if they are poorly paid. Moreover, the regime has the support of other minority groups, including Syrian Christians, who fear the prospect of Sunni domination and its implications for the future character of the state.

—and will focus instead This measure of political stability at home will leave Mr Assad relatively free to on the Israeli challenge— concentrate on the struggle with Israel and the retrieval of the Golan Heights, taken by Israel in the 1967 war and retained in 1973. Syria’s cards in this dispute are far weaker than Israel’s. The armed forces have acquired new weapons but are still no match for their Israeli counterparts, which means that the Syrian side at least will be anxious to avoid a head-on conflict.

There has been some speculation about a surprise, though limited, Syrian attack to liberate part of the Golan Heights, most notably Mount Hermon, where Israel maintains a highly sophisticated listening post with a command- ing view of the region. Such an attack looks unlikely, as it would invite massive Israeli retaliation with little in the way of political or diplomatic return for Damascus. There is no parallel with the 1973 Egyptian surprise attack on the Israeli-held east bank of the Suez Canal which broke the deadlock there and led to the 1979 peace treaty between the two countries.

—by taking action in By the same token, Syria, as champion of the Arab “cause”, is not expected to south Lebanon make peace with Israel until a satisfactory Israeli-Palestinian settlement is agreed. This is still a very remote prospect. Until there is a major breakthrough in negotiations between the Israelis and the Palestinians, the likelihood of Israeli-Syrian talks, let alone progress in them, is small. In the meantime, Syria’s de facto war with Israel in south Lebanon will continue, with some probability of another major Israeli attack in Lebanon over the next two years, possibly this time involving Syrian troops. Such an attack, even if it led to major Syrian losses, could ultimately work in Syria’s favour as the rest of the Arab world would be forced to line up behind it. In this situation, Saudi Arabia and Egypt— which enjoy strong US support—would be forced to take sides. Damascus, therefore, has an interest in keeping the conflict in south Lebanon going, even if it invites large-scale Israeli retaliation against the Lebanese or Syria itself.

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The tripartite alliance is Its efforts to overcome the major obstacles to forging a three-way alliance with still some way off Iran and Iraq only prove the Syrian government’s desperation in the face of Israel’s strength. But this grouping is unlikely to go far because of historical animosities among the three, not to mention recent clashes between Iran and Iraq or Syria’s concern with safeguarding relations with the rich Arab Gulf states, which still shun Iraq for its invasion of Kuwait in 1990.

Economic policy will be It is against this political backdrop that Syrian economic policy will be devised. cautious— Uncertainties regarding international relations will encourage Damascus to be over-cautious when it comes to economic reform. The focus will be on developing mixed-sector and private-sector activity to create jobs. Innovation is likely to be restricted to unification of the exchange rate and the repeal of contradictory economic laws. We expect the multi-tier exchange rate, to be unified in the next few months at or around the so-called neighbouring countries’ rate, which is now set at S£45:$1. The black-market rate is currently around S£50:$1. It also seems likely that Law Number 24, forbidding unauthor- ised Syrians from dealing in foreign currency, will be cancelled to clarify the legal framework for exchange rate reform.

—and wholesale reform Possible changes in the public sector could include an increase in salaries, the will be avoided introduction of more commercial practices and even some lay-offs. Wholesale reforms have been called for and are long overdue, but will be avoided because of the potential social and political costs. Instead, the regime may be expected to focus on the fight against corruption and improvements in such areas as port services, now that trade with Iraq has resumed. Other measures to encourage private investment, such as tax holidays, may be refined or introduced.

Investment growth will As a result of these changes, we expect continued moderate growth in private be moderate— investment and consumption over the next two years. Investment by Syrians abroad should benefit from exchange rate unification, a clarification of foreign exchange handling rules and a rate closer to free-market levels. The government, which has sizeable investment programmes in sectors such as textiles, power generation and telecommunications, should benefit from renewed access to international funds, including those from the EU and the World Bank, now that it has decided to settle its debt arrears with the latter. In the absence of a more decisive reform programme, however, private investment will be limited and it will be left to state-run enterprises to increase output.

—and the picture for On the supply side, reports of the 1997/98 cotton crop point to a further 6% farming and oil is mixed increase in the seed cotton outturn over 1996/97, which was itself a very consid- erable improvement on the previous year. The additional supplies will meet domestic demand created by the rehabilitation and installation of spinning mills, generating real growth in manufacturing. However, food production appears to have fared less well, due to frosts early in the year combined with a shortage of rain, with the wheat harvest estimated to be 20% lower than in 1996. Oil production, having reached an average of 620,000 barrels/day (b/d) in the first half of this year compared with 610,000 b/d in 1996, is not expected to increase further until more investment is forthcoming. At the same time, a noticeable upturn in tourism income is not likely to materialise until the

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regional security situation improves, but the services sector will be helped by activity resulting from recent trade agreements with Iraq. We therefore forecast a slight acceleration in overall GDP growth in 1998 and 1999, from 3.6% to 3.9%, compared with an estimated 3.4% in 1997.

Bottlenecks and With economic growth constrained, we do not expect consumer prices to rise distortions will keep more rapidly than previously predicted. Imported inflation is not a serious inflation high problem in Syria as it is largely self-reliant in food and industrial raw materials. But continued anomalies and bottlenecks in the country’s economic structure will ensure that annual inflation remains well into double digits, at around 16% in both 1998 and 1999.

Oil exports will slip— Syrian exports are likely to have fallen in value this year, mainly as a result of the drop in world oil prices. Our forecast puts the average International Energy Agency (IEA) cif import price for oil at $19.3/barrel in 1997, down from $20.5/b in 1996, representing a 6% fall compared with an estimated increase of less than 2% in the volume of Syrian production. Increasing cotton production is meanwhile believed to have been diverted in large part to domestic spinning mills. Similar factors are expected to depress the overall value of exports over the next 18 months to two years, as world prices for both oil and cotton will remain weak through oversupply. In the absence of any significant rise in the volume of oil exports, we expect their value to be about $2.5bn in 1998. In 1999 additional production and the switching of power plants from oil to gas should see the volume of oil exports offset another fall in prices, keeping their value steady at around $2.5bn. Assuming reasonable weather and a normal harvest in both 1998 and 1999, together with a continuation of the new trading arrangements with Iraq, food exports should start to pick up again in late 1998. On this basis the total value of exports could dip slightly to $3.8bn in 1998 before recovering to around $4bn in 1999.

—while imports will grow The forecast for the value of imports is linked to the likelihood of a general gradually— slowdown in economic growth compared with the first half of the 1990s. For 1997 itself, the value of imports is likely to hold steady, while slower government consumption growth and hesitant private investment should keep the total to $4.4bn-4.6bn in 1998 and 1999.

—lessening pressure on We expect the services and income deficit to widen over the forecast period, the current account largely because of Syria’s decision to pay off debts to France and the World Bank. However, this should be offset by a slight increase in receipts from tourism and by a rise in the transfers surplus resulting from moves to unify the exchange rate. After revising the current-account figure for 1996 upwards to $285m on the basis of new data from the IMF, we now expect the surplus to fall to around $100m this year and next, but then rise to some $200m in 1999.

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Forecast summary ($ bn unless otherwise indicated) 1996a 1997a 1998b 1999b Real GDP growth (%; at 1990 prices) 5.0 3.4 3.6 3.9 Consumer price inflation (%) 20.0 18.0 16.0 16.0 Merchandise exports fob 4.3c 3.9 3.8 4.0 Merchandise imports fob 4.5c 4.5 4.4 4.6 Current-account balance ($ m) 285 100 100 200 Exchange rated (year-end; S£:$) 11.23e 11.23 45.0 48.0

a EIU estimates. b EIU forecasts. c Official estimate. d Official rate. e Actual.

Gross domestic product Syrian pound: exchange rate (c) % change, year on year S£:$, year-end; inverted scale 0 Syria Middle East & North Africa 5 10

20 3

2 30

1 40 n/a 0 1995 96 97(a) 98(b) 99(b) 50 (a) EIU estimates. (b) EIU forecasts.(c) Official rate. 1995 96 97 98 99 Sources: EIU; IMF, World Economic Outlook.

Review

The political scene

Fighting escalates in the Clashes in south Lebanon between Israel and the radical Lebanese Shia Muslim south— guerrilla force backed by Syria, Hizbullah, have intensified over the last three months, with at least 66 people killed—including 24 Israeli soldiers—in August and the first two weeks of September alone. Scores of Lebanese civilians and Hizbullah guerrillas have been killed. In August seven civilians were killed in the southern city of Sidon when forces of Israel’s Christian-dominated proxy, the South Lebanon Army (SLA), lobbed in shells from the Jezzine enclave to the east.

Two weeks later, in Israel’s worst setback in Lebanon since 1985, 12 Israeli commandos were killed in the southern village of Insariyeh, between Sidon and Tyre, after a botched attempt to plant bombs was uncovered by a passing Hizbullah patrol. However, most of the ensuing action was carried out by the Lebanese army, which normally plays a limited role in the fighting between Israel and Hizbullah. In retaliation, an Israeli army helicopter attacked a Lebanese army position a few days later, killing six soldiers. On the same day, three Hizbullah guerrillas, including Hadi Nasrallah, the son of the Hizbullah leader, Hassan Nasrallah, were killed in an operation against Israel.

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—prompting calls in Israel The killing of the 12 Israeli soldiers led to renewed calls inside Israel for a for unilateral unilateral withdrawal from the southern occupation area which Israel calls its withdrawal— security zone. It established the zone, covering some 10% of Lebanese territory, in 1985 after withdrawing from the rest of the country, which it had invaded in 1982. The ostensible purpose of the zone was to prevent attacks on settlements in northern Israel. Since then, Hizbullah, backed by Iran and supplied through Damascus, has fought to expel Israeli forces from Lebanese territory. So far this year some 37 Israeli soldiers have died as a direct result of the fighting and another 73 were killed when the two helicopters in which they were travelling to Lebanon collided in bad weather near the northern Israeli town of Kiryat Shmona.

In a break with previous statements, the architect of Israel’s 1982 Lebanon invasion, Ariel Sharon, who is now infrastructure minister in the right-wing Likud-dominated government, joined with more “dovish” Israeli politicians, such as Yossi Beilin—who helped negotiate the 1993 Oslo peace framework with the Palestinians—in calling for a unilateral Israeli withdrawal from Lebanon. The proposal, “Lebanon First”, has been made before by others, including the current Israeli prime minister, Binyamin Netanyahu.

—but this would require Israel, however, will not withdraw its forces without firm security guarantees Syrian guarantees from Hizbullah and the Lebanese government, to prevent attacks on its northern settlements. Such guarantees in turn require Syrian approval, which Damascus is highly unlikely to give without a deal over the Golan Heights, part of which has been occupied by Israel since the 1967 Middle East war. As far as Syria is concerned, the war to liberate the Golan is partly being conducted in south Lebanon.

Ms Albright pledges With the Israeli-Palestinian track of the peace process frozen, there have been support for a sovereign few, if any, developments on the Syrian-Israeli front. In September the US Lebanon— secretary of state, Madeleine Albright, paid her first visit to the region— including Damascus—but achieved little, mainly because Arab governments are convinced that Washington has no intention of putting pressure on the Israeli government. Ms Albright also paid a surprise visit to Beirut, where she urged restraint in the south and pledged to support a “free and democratic sovereign Lebanon”. This was taken as an oblique reference to Syria’s hold on the country, maintained through the presence there of some 30,000 Syrian troops and the exercise of almost full control over internal and external security arrangements.

—but Lebanese opposition In Lebanon itself Syria continues to face opposition to its presence, especially to Syria’s presence is from the sizeable Christian community. The spiritual leader of the country’s muted Maronite Christians, Cardinal Nasrallah Sfeir, has made increasingly strident speeches over the last few months denouncing Syria’s presence. In August he said Syria was interfering in “every aspect of life” in Lebanon and that Lebanon’s right to self-determination was being undermined by its presence.

In response, the Lebanese prime minister, Rafiq Hariri, reiterated the official line, affirming that the Syrians—who first came to Lebanon in 1976 to end the civil war—were needed to guarantee domestic security. The Druze Muslim

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leader and minister for refugees, Walid Junblat, accused Cardinal Sfeir of trying to restart the civil war. Otherwise, Lebanon’s Christian community, the biggest loser in the 1975-90 civil war, has remained mute and marginalised. While not everybody accepts Syria’s presence in Lebanon, most people in the country refrain from openly criticising it.

Israeli Arabs are invited to Though there has been little substantive progress in the Israeli-Syrian track of Damascus— the peace process, there has been the odd change in form. One major com- plaint of the Israelis in the past has been that the Syrian president, Hafez al-Assad, has failed to make any direct appeal to the Israeli public. Comparisons tend to be made with the Egyptian president, Anwar Sadat, who made a surprise visit to Israel in 1977 before signing a peace treaty two years later.

To the pleasure of the Israeli diplomatic establishment, Mr Assad invited a delegation of 44 Israeli Arabs to visit Damascus in August; this was only the second such visit ever. The group included Labour members of the Israeli parliament, the Knesset, who carried a message from their leader, Ehud Barak. Mr Barak was foreign minister under the former prime minister, Shimon Peres, before Mr Netanyahu was elected in May last year. The first time Israeli Arabs visited Syria was in 1994 for the funeral of Mr Assad’s son, Basil, who was killed in a car crash just outside Damascus.

—but Israel warns of At the same time, however, there has been talk of an impending war between Syrian chemical missile Syria and Israel. Israel maintains that Syria continues to receive chemical and developments— biological weapons from North Korea but no longer needs Pyongyang’s help in developing surface-to-surface Scud C missile capability. Syria may also soon begin producing chemical bomblets for its Scud Cs, according to the US government-run Ballistic Missile Defense Organisation (BMDO).

BMDO officials say the Syrian military recently set up a chemical agent production line at the Centre d’études et de recherche scientifique (CERS) just outside Damascus, where the cluster warheads will be produced. Israeli intelligence believes the CERS is close to completing a new underground missile production facility, modified with Russian help to build Scuds from completely knocked-down kits. Until earlier this year, it was believed Syria could only build missiles from semi-knocked-down kits.

—taking place with According to US reports, Syria has underground missile production facilities at Chinese help Aleppo and Hama, built with the help of technicians from China, Iran and North Korea. It is currently said to field some 60 Scud Cs with single chemical warheads and about 200 Scud B missiles with VX nerve agent warheads delivered by the Soviet Union between 1979 and 1982. Each Scud B can carry almost 1 ton of agent or an advanced, conventional high-explosive warhead of the same weight. However, little is known about what has happened to recently delivered Chinese-built M-9 (DF-15) missiles. US officials have been unable to confirm whether they have arrived fully or partly assembled, or in kits. Syria is also thought to have a number of shorter-range Chinese M-11 (DF-11) missiles which the M-9 is to replace.

The developments are said to have given new impetus to the US-Israeli Arrow II anti-ballistic missile programme, for which the US government is paying

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40% of the $1.6bn bill. BMDO experts believe Arrow II will be operational within two years. However, it is not known how the failure of a test flight in August will affect the programme.

Tank deliveries put the Israel fears that Syria will launch a surprise attack against its positions on the army on a new footing— Golan Heights. In turn, Damascus is concerned that Israel will attack its forces in Lebanon if the fighting in the south escalates. Syria’s defence minister, Mustafa Tlas, has warned that Israel will pay a “heavy price” if war breaks out. His warning may well be based on recent military acquisitions. In addition to the missile programme, the Syrian army has—according to Jane’s Defence Weekly magazine—taken delivery of the first batch of 200 T-55MV main battle tanks (MBT) ordered from Ukraine and deployed them in forward positions near the Golan Heights. It is unclear whether the tanks have been supplied complete or whether Syria’s existing T-55s are being upgraded in Ukraine or Syria.

—vis-à-vis Israel The delivery is a qualitative improvement in Syria’s military inventory. The most powerful Israeli MBT is the Merkava Mk 3, armed with a 120-mm gun, which can outrange and outgun the T-55. However, the T-55 can launch a laser-guided projectile carrying a high-explosive anti-tank warhead which can penetrate 550 mm of steel armour at a maximum range of 4,000 metres. In order to be effective against the Merkava, which is heavily armed in front, it would probably have to hit it in the side or from the rear. But the T-55 also has a computerised fire-control system and napalm protection and is fitted with armour which has proved resistant to advanced US-made armour-piercing tracer round.

Relations with Iraq have Relations with Iraq—long one of Syria’s bitterest foes—have continued to im- gone one stage further— prove over the three months following the visit to Baghdad of a Syrian trade delegation in June. The border between the two is now open to business travel- lers, and ordinary citizens should be able to cross before the end of the year. To ease access, the Syrian and Iraqi governments have approved the establishment of a joint travel company, Shammut and Mayy, to run bus trips twice daily between Damascus and Baghdad, crossing the border at Al-Bu Kamal, 560 km north-east of Damascus. A delegation from the Syrian foreign ministry has also spent ten days in Iraq delineating the border. Some 22 border markers have since been fixed.

—to the detriment of Iraqi Syria has taken other measures to improve ties with Iraq, including hosting an activists in Damascus Iraqi delegation in Damascus after a group of Syrian traders had visited Baghdad. It also closed the “Voice of Free Iraq” radio, based in Damascus and run by Syrian-backed Iraqi opponents of Saddam Hussein. In turn, Baghdad closed down the “Voice of Free Syria”, which had been broadcasting invective across the border for years. Syria has meanwhile been redesigning its passport so as not to carry the note “valid for travel to all Arab countries except Iraq”. Damascus is also said to be refurbishing its old embassy in the Karradah area of Baghdad, possibly in preparation for the resumption of diplomatic relations.

As a result of these developments it appears that members of the Iraqi opposition living or working in Damascus have been leaving the city. There have

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been unconfirmed reports of security-service raids on homes and offices but the authorities have said there is no connection between the resumption of relations with Baghdad and Damascus’s policy towards the opposition. One Iraqi opponent of the regime of Saddam Hussein, Mishan al-Juburi, denied that his offices had been raided. Nevertheless, Iraqi dissidents have been made aware of the less favourable political climate.

Syrian ports will serve Iraq’s trade minister, Mahdi Saleh, visited Syria in early September, where he Iraq— toured the ports of Latakia and Tartous, which will receive goods bound for Iraq. Latakia, which handled only 3m tons last year and has been operating well below capacity, is now said to be negotiating the purchase of four ship-to- shore cranes to improve services. At the moment there are no specialised con- tainer-handling facilities. Tartous, the larger port, is also in the process of buying new cranes. Last year it handled an estimated 4.14m tons, although its capacity is 7m tons.

By mid-September Iraq had signed deals for Syrian exports worth $30m, mainly for pharmaceuticals, canned foods and grains, and was in the process of negotiating contracts worth another $20m. Transit deals included 50,000 tons of French sugar through Tartous, 200,000 tons of French wheat, 200,000 of US wheat and 250,000 of Australian wheat.

—but reopening of the oil However, Syria has not yet received an official request from Iraq asking to open pipeline is not imminent the oil pipeline which runs from Kirkuk in northern Iraq to the Syrian Mediterranean terminal at Banias. The 400-km line, with a capacity of 800,000 barrels/day (b/d), has been partially closed since 1982. Some 400,000 b/d in Syrian crude currently flows through the Syrian part of the line. The Iraqis closed it in 1976, reopened it in 1979, but closed it again with the start of the Iran-Iraq war in 1980. Pumping resumed in 1981 but Damascus subsequently shut the line after it started receiving oil on concessionary terms from Iran.

Syria’s change of approach to Iraq is not surprising. The Syrian leadership is feeling increasingly isolated as a result of the 1996 military pact between Israel and Turkey, which has US backing. In recent years it has stood aloof from Iraq, siding with Iran in the 1980-88 Iran-Iraq war and joining the USA in opposing Iraq’s invasion of Kuwait. Recently, however, Syria has explored the potential for a triple alliance with Iran and Iraq to counter the Israel-Turkey-USA axis, but with little success. Mr Assad visited Iran at the end of July but relations between Iran and Iraq are still tense, as demonstrated at the end of September by Iraqi allegations that Iran had violated Iraqi airspace.

Benefits from a triple Iraq is also wary of joining forces with Iran and Syria because of the effect such alliance are unlikely to a move would have in antagonising its neighbours to the north and south— materialise Turkey and Saudi Arabia. Nor is Iran willing to commit itself completely to Syria because of the risk of a war with Israel. Syria itself will be careful to move slowly in improving ties with Iraq because it wants to avoid angering its Gulf Arab backers—Saudi Arabia and Kuwait—which are most averse to reconcili- ation with Iraq after the 1990 invasion. Nevertheless, Syria has joined Egypt in objecting to the holding of naval military exercises by the USA, Turkey and

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Israel in international waters in the eastern Mediterranean. These are due to take place on November 15.

The president’s son takes The president’s 31-year-old son, Bashar al-Assad, appears to be establishing a on new responsibilities— new power base for himself as the man in charge both of Syria’s affairs in Lebanon and of rooting out corruption in Syria. Sources close to the regime say Bashar is also beginning to get involved in the formulation of economic policy, especially in such areas as privatisation and foreign investment, which he is reportedly keen to promote. One proposal has been to nominate Bashar—who was recently promoted from the rank of army major to lieutenant-colonel after three years at the military academy—for a senior post in the Baath Party, in part to reactivate the role of the organisation.

Bashar’s increasingly prominent role belies earlier doubts about his interest in Syrian politics. He was a young, rather shy, student of ophthalmology in London until 1994, when he first emerged into the spotlight following the death of his elder brother, Basil, in a car crash. It had been expected that Basil would take over from his father, as he combined charisma with a proven track record in dealing with smuggling across the border from Lebanon. Until recently it seemed unlikely that Bashar could play a similar role.

—as Hafez al-Assad It still remains unlikely that Bashar will succeed his father as president. Instead prepares for the future it appears that Hafez al-Assad is grooming his son to safeguard the future of the family and protect the Alawi regime. The Assad family belongs to the minority Muslim Alawi community, an offshoot of the Shia sect. To fulfil his father’s expectations, Bashar will need the backing of longstanding Sunni supporters of the Assad regime such as Abdel-Halim Khaddam—the most powerful of the three vice-presidents—and Hikmat Shehabi, the army chief of staff.

Economic policy and the economy

The economy minister Although economic reforms have been extremely limited in scope and number promises liberalisation— in recent years, the government continues to repeat promises that it will pursue the reform process and encourage private domestic and foreign investment. In a speech at the opening of the Damascus international trade fair at the end of August, the economy and foreign trade minister, Mohammed al-Imadi, said that Syria’s trade and foreign exchange regimes would be liberalised and that improvements would be made to the institutional framework to facilitate the launch of industrial projects. However, Mr Imadi made no promise about when these changes would take place. His report on the country’s economic performance, which referred to average annual growth rates of 7% between 1990 and 1996, equal to twice the level of population growth, suggested that the government was in no hurry to make dramatic changes. Its most decisive step during the quarter under review was to pay off part of its overdue $524m debt to the World Bank (see Foreign trade and payments).

—but intimates no sense Over the last five years, Syria has adopted some economic and financial resolu- of urgency— tions which have encouraged the private sector to play a greater role in the economy and facilitated transactions in hard currency. Law Number 10 of 1991

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 Syria 15

allowed tax holidays on domestic and foreign investment and is said to have attracted a total of $8bn so far in project finance and created more than 100,000 jobs. However, only around half the projects approved under the law have actually been implemented. Most of these have been small and only one—for a chemicals factory—has involved a significant loan-financing element.

—and local entrepreneurs A series of more radical reforms, proposed last year by a member of the want more National Assembly and one of Syrian’s leading textile exporters, Riyadh Seif, is still not being seriously considered by the authorities. Mr Seif called for the following.

• A proper commercial framework to be applied to public-sector operations.

• Public-sector wages to be raised to improve performance and reduce corruption, and the public-sector workforce to be cut. According to the Central Bureau of Statistics, about 45% of the total workforce earn wages of less than $92 per month, while another 15% receive half this amount. An estimated 6% get $161 per month and less than 2% get over $200.

• Non-oil exports to be promoted by reducing taxes, removing foreign exchange controls, improving services at ports and providing easy access to credit.

• Fiscal reforms to be introduced, including a cut in the top rate of tax, the imposition of corporation tax on profits rather than turnover and the retrain- ing of tax administrators.

• A revamping of the financial sector by allowing branches of foreign banks and local banks to open, unifying the exchange rate and rescinding Law Number 24 (which bars non-authorised Syrians from dealing in foreign currency).

The currency has been The Central Bank of Syria devalued the so-called neighbouring countries’ ex- devalued by 3.4%— change rate by 3.4%, from S£43.5:$1 to S£45:$1 with effect from July 15, bringing it closer to the S£50:$1 free-market rate for the Syrian pound in Jordan and Lebanon. This was the second devaluation of this type in less than a year; the previous one, from S£42:$1, took place in September 1996. Bank officials said the recent move was made possible by the stability of the pound and the strength of the economy and was part of the longer-term process of unifying the different exchange rates. Unification had previously been promised by the end of 1997, and the fact that the 1998 budget is being compiled on the basis of the neighbouring countries’ rate adds credence to the pledge.

At present around 75% of foreign exchange transactions are conducted at the neighbouring countries’ rate. However, Law Number 24 is still on the statute books despite government statements that its abrogation is being considered.

—and the 1998 budget The government has also decided to use the neighbouring countries’ rate to will be based on the new calculate its 1998 budget. To date, it has been using a combination of rates, rate— including the official S£11.2:$1, to work out expenditure and revenue. Other rates have been used to calculate oil revenue and operating costs. The finance ministry says it has started work on the budget early to be ready in time for the start of the new financial year in January.

EIU Country Report 4th quarter 1997 © The Economist Intelligence Unit Limited 1997 16 Syria

—but budget information The 1997 budget was passed in April but information on budget allocations to is slow to filter through public-sector companies has only recently been released. The largest amount under this heading, $157m, went to industry, including a single allocation of $55m to the General Organisation for Chemical Industries, which produces fertilisers, glass, pharmaceuticals and paint. The General Organisation for Engineering Industries—which runs firms like the Aleppo Cable Company and the Hama Steel plant—received $43.2m, the Foreign Trade Company for Chemicals and Foodstuffs, $3.8m, the Sugar Company, $7.8m and the Al-Furat Tractor Company, $14.2m.

The Central Bank will The Central Bank is also set to issue bank notes of S£1,000 and S£200, local issue new notes and coins newspapers have quoted the governor, Bashar Kabbara, as saying. Mr Kabbara says he will gradually replace old bank notes with new coins. The S£500 bank note is currently the largest, with the S£100 note second. Since last year Syria has started circulating coins of S£25, S£10, S£5 and S£2.

Oil and gas

The official gazette Syria’s official gazette has published full details of the oil exploration agreement confirms details of Elf deal signed in March with a consortium led by France’s Elf Aquitaine for the Tishrin area in the north-east of the country. The deal covers just over 4,200 sq km but excludes five blocks where the state-owned Syrian Petroleum Company (SPC) has already discovered oil and gas. The blocks are Tishrin, Salihiya, Jbeissa, Ghouna/Ghubaia and Marqada.

The consortium—consisting of Elf Hydrocarbures Syrie with 40%, Sumitomo of Japan with 30% and Malaysia’s Petronas with 30%—is to invest $25m over seven and a half years, sinking seven wells and carrying out three-dimensional geological surveys. After paying a 12.5% royalty and recovering 25-40% in costs depending on the volume of production, 50% of profit oil is to go to SPC. The rest is to be shared on a sliding scale, according to which SPC takes a minimum of 68%, up to a maximum of 85% (if production exceeds 100,000 b/d). If gas is produced, a separate contract is to be drawn up.

Production has started The Irish oil operator Tullow has started production from the Kishma field in at Kishma the east of the country and is expected to achieve 5,000 b/d before the end of the year. The East Al-Sham permit was awarded in 1992 to a group comprising Tullow—the operator with 24%—the UK’s Clyde Bank with 27%, Pict Petroleum of the UK with 19%, Malaysia’s Petronas with 20% and the UK’s Seafield Resources with 10%. Sanctions worries obstruct Conoco gas deal—

Sanctions worries The government appears to have turned down an offer from a US oil and gas obstruct Conoco gas deal— giant, Conoco, to develop associated gas from oilfields around Deir el-Zor in the north-east of the country because of fears that the US government will impose sanctions on Syria by the end of the year. Conoco and the Ministry of Oil had signed a letter of intent to go ahead with the $300m-350m project to gather and process 400m cu feet/day of gas. However, the Anglo-Dutch concern Shell, which already operates in Syria, now appears to be the front-runner.

The US House of Representatives has moved to tighten sanctions against both Syria and Sudan, which are on a US list of states accused of sponsoring terrorism. The move aims to sever all US commercial contacts with Damascus and treat Syria the same as other countries, notably Cuba, Iran, Iraq, Libya and North Korea, on the US “terrorism” list. The US Senate has already passed legislation against dealings with countries on the list but has left open the possibility of the US government waiving the rules if national security is at risk. The White House has argued so far that Syria’s role in the US-sponsored Middle East peace process prevents the government from subjecting it to sanctions. It is expected that Congress will pass the new legislation later this year.

—but there may be other However, a deal signed with Conoco now would be safe as the proposed legis- factors too lation, originally put forward by US congressman Eliot Engel (Democrat—New York), does not include a retroactivity clause. The bill is expected to sail through the House before going to the Senate’s Foreign Relations Committee, which will decide whether or not to put it to the Senate floor. The US administration is expected to oppose the bill only symbolically. However, reports suggest that the Syrian government may also have changed its mind over the Conoco letter of intent because of the high rates of return the US firm was seeking. The government is now apparently seeking rebids from Conoco, Shell and the USA’s Coastal. Elf, too, has expressed an interest in working with Conoco.

The project entails taking gas from fields operated mainly by the Al-Furat Petroleum Company (AFPC)—a joint venture between SPC (with 50%), Shell (with 31.25%) and Deminex of Germany (with 18.75%)—and Deir el-Zor Petro- leum Company (DZPC)—a joint venture between Elf and Malaysia’s Petronas

(together owning 50%) and SPC (owning the other 50%). DZPC produces some 60,000 b/d.

Agriculture and mining

Hot weather hits cereal Syria’s wheat output may have fallen by around 20% this year from some 4m production— tons to 3.2m tons, according to initial findings from the Ministry of Agriculture and Agrarian Reform. Ministry officials have said that this has largely been due to a late frost earlier in the year, followed by hot, dry weather. Other grain production is also said to have fallen compared with last year. Barley output, for instance, may fall to around 1.1m tons from 1.6m tons in 1996. Neverthe- less, the government has said output will meet domestic consumption needs. Wheat consumption is some 2m tons/year (t/y).

—hitting exports— In 1993 the country produced some 3m tons of wheat, making it self-sufficient for the first time. It started exporting in 1994, mainly to Algeria, North Korea, Turkey and Tunisia. Up to the end of August the government had bought some 1.9m tons in wheat from private farmers, compared with 3m tons by the same time last year. Stores of barley have fallen from 1.2m tons at the end of 1996 to 580,000 tons at the end of June. Domestic consumption of barley is 300,000 t/y and sales of barley to the government fell to 20,000 tons at the end of August, compared with 502,000 tons for the same time in 1996. Exports of barley are also controlled by the government and go to countries such as Lebanon, Cyprus, Jordan and Saudi Arabia. Total cereal exports last year were worth some $150m, but earnings during the first half of 1997 amounted to less than half that amount, at $60m from the sale of some 375,000 tons.

—and pulses have also In the case of pulses, private dealing is allowed. Lentil production is also ex- been affected pected to fall to 93,000 tons from 152,000 tons, while sales of lentils to the government had fallen to just over 6,000 tons, at the end of August compared with nearly 97,000 tons at the same time in 1996. However, this may be more to do with the private sector’s greater involvement in the marketing output. Lentil stocks have fallen from 89,000 tons to 45,000 tons over the same period. Only chickpea output, which last year stood at 46,000 tons, rose—to 60,000 tons.

Phosphate output is Phosphate production is set to rise to 4m t/y by 2000 from a projected 2.6m t/y set to rise this year, according to government officials. The government’s General Estab- lishment for Phosphate and Mines says it is aiming for higher production by modernising equipment and introducing new rock-washing techniques. Around 80% of production is exported, mainly to Europe. The rest goes to the state-owned fertilisers establishment. Production last year was 2.1m tons. The government has also been planning to build a large phosphate fertiliser plant at Palmyra, 350 km north-east of Damascus, but progress has been slow.

Industry

The Aleppo power plant is Japan’s Mitsubishi Heavy Industries (MHI), which is building Syria’s largest three-quarters finished— power plant at Aleppo, is about 75% through its work and should be finished by the middle of next year, according to company officials. The plant, which will cost around $525m, is to house five 213-mw turbines with a total capacity of 1,065 mw. Most of the money is being provided by Saudi Arabia.

MHI is also set to build a $375m plant at Al-Zara, just outside the northern town of Homs, this time with Japanese money. Hungary’s EGI Contracting and Engineering Company recently won a $70m subcontract to build three cooling towers for the plant. MHI also recently completed a 600-mw plant at Jandar, again with Japanese money. According to the government, Syrian demand for power is rising by around 6% per year. Installed generating capacity at the end of 1996 was some 3,600 mw but this is expected to rise to 4,800 mw by 2006 at a total investment cost of $1.6bn.

—and other upgrade International contractors have put in their bids to upgrade a power station at projects are planned Banias, which has four 170-mw units. The line-up includes Enel of Italy and Kennedy & Donkin of the UK, both of which put in bids to upgrade a power station at Mhardeh in May. Mhardeh has four 150-mw units.

The state-run Public Establishment for the Generation and Transmission of Electricity is also said to be close to awarding contracts for consulting services on adding a steam turbine unit to a power station at Al-Naseriya, which currently has three gas turbine units each producing 128 mw. The plant was one of three built by an Italian company, FiatAvio. The project is being funded by the Kuwait Fund for Arab Economic Development.

The government has also appointed a UK firm, Metz and McLellan, to consult on the Syrian section of a electricity grid link-up with Turkey. Bids for a link with Lebanon are also expected soon and an Indian company, KEC Inter- national, won a $45m deal to build transmission cables to the Jordanian border.

Homs will have a new The government is planning to build a new sugar factory in Homs to use up sugar factory local production of sugarbeet and meet rising demand. Domestic consumption last year was some 550,000 tons, of which under half was met locally by six government factories. The new factory, which is to process around 6,000 tons/day of sugarbeet, will produce around 225,000 t/y of white sugar, taking total Syrian output in 2000 to some 425,000 t/y.

The textile industry is The Japanese International Cooperation Agency has started the second phase of a subjected to Japanese study on the private and public textile industry in Syria. The study, which began scrutiny in August and was due to take a month to complete, focuses on 11 public-sector plants manufacturing underwear, outer garments and rugs. The Syrian government is already considering building one new textile plant at Tartous on the Mediterranean coast. When existing projects are finished, Syria should have the capacity to process three-quarters of its cotton production at home.

Lube oil production Production has begun at a new lube oil plant at Adra, 20 km north-east of begins at a Mobil plant Damascus, where a US company, Mobil, has a 49% stake. Capacity is set at

10,000 t/y. A local private company, Alimco, has the majority 51% share and hopes to sell industrial and automotive lubes domestically and regionally. The Syrian company has another joint venture with Nestlé of Switzerland producing chocolates.

Transport, communications and tourism

Payments are made for Syria has paid the European passenger aircraft manufacturer Airbus $9m to- the Airbus order wards six medium-range A320 aircraft ordered late last year. This brings to $24m the total amount paid to Airbus for the $250m deal, according to news- paper reports. Two of the planes are due to join Syrian Arab Airlines before the end of the year, with the rest set for delivery in 1998 and 1999. Over the next 10 years, the airline plans to buy a total of 15 Airbuses.

The recent deal with the French-based manufacturer follows a visit to Damascus last year by the French president, Jacques Chirac. Paris agreed to waive 50% of Syria’s FFr1.85bn ($350m) debt if Damascus agreed to buy aircraft from Airbus and 32 French-made locomotives. According to diplomatic sources, Kuwait is funding the Airbus deal which is currently being paid out of reserves of the Central Bank of Syria.

Iran is studying a There have been further reports that Iran’s Metro Company has agreed to study Damascus underground the construction of an underground train system in Damascus. Russian con- rail system sultants made similar studies in the early 1980s.

The expansion of The government-owned Syrian Telecommunications Establishment is said to telephone capacity is in be evaluating bids for a $200m contract to add 1 million new telephone lines. prospect New statistics show that there are now some 1.8 million telephone and 9,000 fax subscribers in Syria. The main bidders are believed to be Siemens of Germany, Alcatel of France and Sweden’s Ericsson. The project involves setting up digital links between major cities, new transmission lines in rural areas and fibre-optic cable. Gulf agencies are financing around 50% of the costs.

Jordanian tourism The Jordanian government has been lobbying Damascus to get ten Jordanian companies seek removal tourist companies removed from a blacklist of firms prevented from dealing from a blacklist with Syria. In June the Syrian embassy in Amman informed the local Associa- tion of Tourism and Travel Offices that these companies would not be allowed to operate over the Syrian border, in part to protect the local Syrian industry from competition, but also because the companies had dealings with Israel.

Hotel investments look Osman Aidi, the Syrian hotel magnate who, with the government, owns and more likely operates the Cham Palace chain of hotels across the country, has said he will expand hotel operations now that a French court has given him protection from creditors for his Royal Monceau group of hotels in France. Mr Aidi agreed a debt-restructuring deal with French banks in August that has paved the way for further investments in Syria.

Foreign trade and payments

Syria considers joining the Syria is considering joining the World Trade Organisation (WTO) but first WTO wants to strengthen its position by being a member of an Arab trade group. Recent reforms, including moves towards unifying the exchange rate (see Economic policy and the economy) and the payment of loan arrears to the World Bank, appear to confirm the view of local economists that Syria is moving ahead in easing monetary restrictions to prepare for an Arab market. One official has said that Syria is aware that countries belonging to trade groups have a better chance of negotiating tariffs, protection measures and other terms with the WTO. Syria feels that, for the sake of Arab unity, Arab countries should not add customs duties on to each others’ exports when exports to Europe go tariff-free.

A trade deal is struck with Economic integration with Lebanon will be reinforced by agreements reached Lebanon— in recent weeks. On a visit to Damascus in late August the Lebanese prime minister, Rafiq Hariri, agreed to gradual liberalisation of trade in agricultural and industrial commodities. The two countries are to set up a joint committee bringing together the ministers of economy, finance, agriculture and industry to oversee a study on coordinating and unifying customs duties. It has been agreed, for example, that the tax on Lebanese bananas sold to Syria would be limited to $85/ton.

In return, Syria is to provide Lebanon with 50 mw of electricity through a transfer station at Anjar in Lebanon’s Beqaa valley. In addition the Syrian minister of oil and mineral resources, Maher Jamal, visited Lebanon to arrange the sale of more Syrian oil products and to discuss carrying out a study of the Lebanese oil refinery at Tripoli, north of Beirut, which has been out of action since the Lebanese civil war.

—and another is in the Syria and Jordan have also been moving to exempt goods from customs duties making with Jordan under the terms of a 1975 trade agreement. Preliminary steps involve drawing up a shortlist of goods with the measures going into effect next year, according to Jordan’s minister of industry, Hani Mulki. Last year Syria signed economic agreements with Tunisia and revived trade committees with Algeria and Egypt. It also has economic and trade committees with Saudi Arabia, Kuwait and Lebanon which meet separately and periodically. In June the foreign ministers of Syria, Egypt and the six-nation Gulf Cooperation Council approved the idea of setting up a common market among themselves to form the nucleus of a common Arab market.

Debt repayment is worked Syria has agreed to pay off $562.4m in debt arrears to the World Bank in a move out with the World Bank— widely seen as a step towards improving ties with international financial institutions and attracting more investment to the country. It paid a lump sum of $269.5m on September 1 and will repay the remainder in monthly instalments of $6.1m. It is believed that Saudi Arabia is helping Syria to meet these obligations.

Once a debt repayment scheme is arranged with Germany, Syria should then have access to some $285m in loans from EU institutions which so far have been blocked. Though Syria owes Germany over $500m, only a small portion, $30m, is owed to the former West Germany. Syria is querying the validity of the German state’s takeover of debt to the former East Germany.

—with hopes of attracting The September payment follows a deal signed with the World Bank’s deputy new investment head of mission for the Middle East and North Africa, Kamal Darwish, who visited Damascus at the end of July. To cover the payment, the government has added S£10.2bn ($227m) to the 1997 budget. The deal also covers Syria’s debt to the World Bank’s soft loan arm, the International Development Association. The governor of the Central Bank, Mr Kabbara, hopes the agreement with the World Bank will attract more investment to Syria and encourage leading international banks to deal with the country. Syria is also said to be negotiating a debt-rescheduling agreement with the Jeddah-based Islamic Development Bank, to which it owes some $300m.

Quarterly indicators and trade data

Quarterly indicators of economic activity

1995 1996 1997 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr Mining production Prodn/day Petroleuma m barrels 0.60 0.61 0.62 0.59 0.60 0.61 0.58a 0.57 0.57 0.56b Prices Monthly av Consumer prices: 1990=100 171.0 164.0 169.7 177.8 187.9 181.6 181.3 187.9 n/a n/a change year on year % 4.3 9.3 7.4 11.1 9.9 10.7 6.8 5.7 n/a n/a Money End-Qtr M1, seasonally adj: S£ bn 192.28c n/a n/a n/a n/a n/a n/a n/a n/a n/a change year on year % 20.5c n/a n/a n/a n/a n/a n/a n/a n/a n/a Foreign trade Qtrly totals Exports fob S£ m 11,100 11,600 9,980 11,880 9,610 10,890 12,380 12,010 n/a n/a Imports cif “ 13,470 11,670 13,220 13,450 12,600 14,570 16,050 15,580 n/a n/a Exchange holdings End-Qtr Central Bank: goldd $ m 237 242 240 241 250 244 240 235 n/a n/a foreign exchange “ 126e n/a n/a n/a n/a n/a n/a n/a n/a n/a Commercial banks: assets ” 3,086 3,357 3,347 3,573 13,838 14,467 n/a n/a n/a n/a Exchange rate Official rate S£:$ 11.23 11.23 11.23 11.23 11.23 11.23 11.23 11.23 11.23 11.23

Note. Annual figures of most of the series shown above will be found in the Country Profile. a Revised from 3 Qtr 1996. b Estimate for 3 Qtr, 0.56, forecast for 4 Qtr, 0.56. c End-4 Qtr 1993. d End-quarter holdings at quarter’s average of London daily price less 25%. e End-2 Qtr 1989.

Sources: IEA, Monthly Oil Market Report; IMF, International Financial Statistics.

Trade with major partnersa ($ ’000; monthly averages) Italy Germany France Spain UK Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Jun Jan-Jun Imports from Syria cif 1995 1996 1994 1995 1994 1995 1995 1996 1996 1997 Fruit, vegetables & products 40 555 255 300 13 34 37 31 38 18 Tobacco & manufactures00130107000 Hides & skins, undressed3,416877714700000 Textile fibres 5,166 4,462 485 322 403 568 2,492 2,289 580 424 Crude petroleum 35,074 50,756 47,223 45,917 27,791 30,888 10,170 18,930 11,735 5,194 Petroleum products 4,817 5,281 0 0 242 1,010 369 0 4 0 Textile yarn, cloth & mnfrs 494 205 379 382 47 39 29 6 5 12 Total incl others 39,891 65,476 52,522 52,270 30,547 35,010 22,836 22,500 14,656 7,65

Italy Germany USAb Japanc France Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Exports to Syria fob 1995 1996 1994 1995 1995 1996 1995 1996 1994 1995 Cereals & products 873 213 174 2 4,407 3,687 1 0 2,994 5 Sugar & products 536 1 63 231 286 1 0 0 1,035 2,778 Chemicals 4,284 5,826 4,844 4,142 775 712 318 334 2,796 2,157 Rubber manufactures 172 215 340 308 66 32 1,129 1,547 136 91 Paper & manufactures 620 782 374 758 275 177 497 83 93 145 Textile yarn, cloth & mnfrs 2,020 3,051 1,398 1,247 852 1,324 1,013 1,498 631 544 Iron & steel 1,642 1,039 1,705 948 450 499 1,762 458 1,744 1,227 Non-ferrous metals 390 744 219 338 33 120 3 0 54 47 Metal manufactures 1,973 2,028 704 639 414 364 409 436 453 329 Machinery incl electric 20,173 18,095 26,552 21,192 5,680 7,567 5,579 12,764 8,303 5,537 Transport equipment 846 793 3,158 2,512 1,378 682 3,187 3,738 1,631 751 Total incl others 38,863 40,151 42,639 35,847 18,526 18,661 15,101 22,332 22,041 17,133

Note. Commodity totals are the sum of items shown in the trade accounts and may be incomplete. a Figures from partners’ trade accounts. b US exports to Syria averaged $19.7m and $13.5m per month for the period January-July 1996 and 1997. c Japan’s exports to Syria averaged $23.2m and $16.6m per month for the period January-June 1996 and 1997.

Sources: UN, External Trade Statistics, series D; UK HM Customs & Excise, Business Monitor, MM20; USA Department of Commerce News, FT900; Japan Tariff Association, Japan Exports & Imports.