The High Road to Damascus: Engage Syria's Private Sector
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The High Road to Damascus: Engage Syria’s Private Sector August 2007 Andrew Tabler Andrew Tabler is an outgoing fellow at the Washington-based Institute of Current World Affairs and editor in chief of Damascus’ Syria Today magazine. He is also Op-Ed contributor to The New York Times and International Herald Tribune and a contribut- ing writer to The New York Times Magazine. His blog on Syria, “Eighth Gate,” can be found at www.andrewtabler.com. Recommendations are proposing legislation and rules to comply with Due to a variety of economic and political forces, the WTO guidelines. Syrian state is releasing controls on the Syrian economy. This opens a new arena for American influence in Syria. • Be more selective in applying US banking restrictions. For the first time in over 40 years, through its business Working with the Commercial Bank of Syria to cor- sector, the United States can affect the lives of everyday rect its procedures and circumvent money laundering Syrians by engaging these new forces and capitalizing on will benefit the United States as well as the Syrian the entrepreneurial qualities inherent in Syrian culture. private sector. To do so, the United States needs to revisit the follow- • Reevaluate the role and consequences of the current ing policies that have had the ultimate effect of turning US State Department democratization program, the Syria toward other suppliers and investors, including Middle East Partnership Initiative (MEPI), on Syrian the Islamic Republic of Iran. liberalization and civil society empowerment. Damascus has been unable to differentiate between • Recalibrate or drop US trade sanctions. These have what it sees as US government-led “regime change” not decreased US exports to Syria, but have backfired programs and more general American economic and in terms of public diplomacy, and opened the door social activities that have taken place for years. As a for Iran and others states to capitalize on Syria’s result, the Syrian government has shut down long- growing economic opportunities. standing educational exchange programs by the Fulbright Program and Amideast. • Assist Syria’s transition to a market economy. Business knowledge-transfer in the area of manage- • If relations improve substantially, determine how US ment skills and anticorruption efforts can facilitate involvement might benefit Syria’s energy sector. Syria this transition, especially as the Syrian government is eager to exploit its remaining 2.4 billion barrels of looks to increase revenues via its private sector. proven oil reserves, and it has sizable natural gas deposits that have not been tapped due to the limits • Reconsider the utility of current US efforts to block that the US government has imposed on new invest- Syrian membership in the World Trade Organization ments and technological inputs by American and (WTO). By removing American objections and work- other Western companies. ing in concert with European assistance programs in Syria, the West could aid those Syrian reformers who Policy Analysis Briefs are thought-provoking contributions to the public debate over peace and security issues. The views expressed in this brief are those of the author and not necessarily those of the Stanley Foundation. The author’s affiliation is listed for identification purposes only. 2 Current Realities The Old City of the Syrian capital has seven gates, merican and European policymakers are however, and the United States should consider dusting off their Syria playbooks as con- other avenues while waiting for a political door to Aflict rages in neighboring Iraq, Lebanon, open. Syria’s private sector is flourishing as the and the Palestinian territories. Following former socialist-based Ba’athist Assad regime has liberal- Lebanese Prime Minister Rafik al-Hariri’s assassi- ized its finance and trade sectors in the face of eco- nation in February 2005, the Bush administration nomic crisis and mounting international pressures. led an international and regional effort to isolate The trading and entrepreneurial spirit Syrians the regime of Syrian President Bashar al-Assad learned millennia ago on the Silk Road has sur- due to its suspected involvement in the murder. vived 44 years of Ba’athist socialism. Engaging US Secretary of State Condoleezza Rice’s recent Syria’s private sector now would allow the United effort at “Iraq only” engagement with Damascus States to confront rapidly spreading Iranian influ- has quickly turned into a dialogue of the deaf, ence in Syria and to invest in shared ties that will however. Damascus says it will only talk to lead to greater influence. Ironically, the main Washington if the United States reappoints an obstacle to Americans engaging the trading and ambassador to Syria and launches immediate entrepreneurial spirit of Syrians is US trade sanc- high-level dialogue on all issues, most notably the tions—measures that never worked in the past and recently established international tribunal into will never work in a globalized future. Hariri’s murder that is likely to call Syrian sus- pects to testify. Progress on other issues is equal- Damascus’ Fiscal Woes ly problematic: Western capitals regard Syria as a Syria’s oil production is in rapid decline, and so are major transit route for foreign fighters into Iraq, the revenues the Assad regime needs to fund its mil- for arms to Hezbollah, and home to a number of itary, security services, and bloated public sector. Palestinian militant groups (most notably Hamas) After peaking at 590,000 barrels per day (bpd) in bent on Israel’s destruction. The stalemate is 1996, Syrian oil production is now around 400,000 expected to continue until President Bush leaves bpd and falling at a rate of 11% per annum.1 During office in January 2009. But given accusations over Washington’s period of “constructive engagement” possible Syrian involvement in a rash of bombings with Damascus in the 1990s during the “Peace in Lebanon, as well as still unclear past relations Process” with Israel, the American energy giant with a leader of the Al Qaeda-affiliated militant ConocoPhillips helped Syria make better use of its group Fateh al-Islam in Lebanon, a political settle- gas production, making more Syrian crude avail- ment between Washington and Damascus might able for export. International pressure on be years away, if ever. Damascus over the last few years has complicated the regime’s ability to exploit its natural gas reserves Meanwhile, Assad is deepening Syria’s 25-year as an alternative, however. As a result, Syrian crude alliance with the Islamic Republic of Iran. exports are now only around 175,000 bpd and Desperate for political support and facing an falling,2 netting the regime around $6.2 billion per acute fiscal crisis due to rapidly declining oil rev- year in 2005.3 The International Monetary Fund’s enues and rising unemployment, Assad has wel- (IMF’s) preliminary conclusions for 2006 put comed billions of dollars in Iranian investment in Syria’s oil revenues at a mere 4.5% of GDP, dra- Syria’s military and private sectors. Now on matically down from 14.7% in 2003.4 firmer footing, Damascus is sending hard-line messages in increasingly defiant tones to US Some Syria analysts predicted higher crude prices allies in the region. One Syrian Ba’ath Party offi- over the last few years would give the regime a cial, speaking on condition of anonymity in July, much-needed lifeline. However, the regime’s slow told an Israeli newspaper that if Israel didn’t reform of its bloated public sector and reluctance evacuate the Golan Heights by next September, to cut hefty food and diesel subsidies has kept Syria Syria would launch Hezbollah-style “resistance from exploiting this opportunity—something the operations” against Israeli settlements on the dis- Syrian government now admits. In March of this puted plateau. An editorial in the state-owned year, Syrian Finance Minister Mohammed al- Al-Baath the same day said the “road to a solu- Hussein announced that for the first time in more tion” in strife-torn Lebanon runs through the than two decades Syria had become a net oil “gate of Damascus.” importer. Syria refines its own gasoline—making it easier for the state to subsidize and hide costs. Due to decades of poor planning, however, Syria does penalties, causing the state to announce a go-easy 3 not refine large amounts of diesel fuel, on which approach. The 2006 budget outlines a 27% annu- Syria is heavily dependent for its transport, agri- al drop in customs revenues, due to Syria’s joining cultural, and heating needs. In 2006, Syria was of the Greater Arab Free Trade Area (GAFTA) forced to import diesel from the international and Free Trade Agreement with Turkey. In short, market at 56.4 US cents per liter, but subsidized a Damascus’ revenue sources are dwindling. domestic price of 13.7 US cents per liter. A recent IMF report put Syria’s petroleum price subsidies Meanwhile, more Syrians are hitting the labor at a whopping $15 million a day ($5.4 billion market than at any time in the country’s modern annually), three times the annual budget alloca- history. The Syrian population grew at a rate of tion for tourism; $5.4 billion is more than 15% 3.7-3.8% in the 1980s (then the highest rate in of Syria’s $30 billion GDP in 2006.5 As a result of the world). Today, Syria must create 200,000 new falling production and rapidly rising domestic jobs per annum to lower unemployment rates demand, Hussein estimated that the oil deficit of that are now hovering around 11%. The 2006 $157 million in 2006 would grow to a staggering budget outlined the creation of 50,000 new pub- $1.3 billion this year.6 lic sector jobs, adding to the public sector’s bloat- ed payrolls.