Syria: The Son And The
Fathers Old Allies
Stratfor.Com: In an effort to kickstart Syrias stagnant economy, Damascus will allow foreign banks into the country to operate in free zones. Bashar al-Assad, son and heir to late president Hafez al-Assad, is expected to take over for his father and is spearheading Syrias economic and financial reform. By allowing foreign banks to operate freely, Bashar appears intent on creating a parallel banking system that will circumvent Syrias current banking system controlled by his fathers Baath party loyalists without directly challenging their entrenched interests. But the sons plan may ultimately result in his loss of the critical loyalty of his fathers old allies.
Syria has begun to open up its financial sector and allow foreign banks to operate in free economic zones, the official Ath-Thawra newspaper reported on June 26. According to the report, authorities in the free trade zones began this week to accept requests from investors who want to open banks. Economic and financial reform is a key priority of the recently reshuffled Syrian government and new Prime Minister Mustafa Miro former governor of Aleppo province and a Bashar loyalist.
Bashar al-Assad, western educated and oriented, appears to be spearheading the reform movement. As the apparent successor to his late father, longtime President Havez Assad, Bashar is attempting to create a parallel banking system independent of Syrias current nationalized system in order to circumvent political problems with his fathers old loyalists. But the sons efforts may fail.
Ibrahim Wardeh, director of investment for Syrias free zones, told Ath-Thawra that first rank banks with a minimum capitalization of $11 million in foreign exchange will be able to transfer and receive foreign currency without restriction and will not have to pay taxes. In 1972, Syria set up free zones for industry, trade and transit of goods in five cities: Damascus, Adra, Aleppo, Lattakia and Tartus. Allowing foreign banks to operate in these zones will allow international investors free control over their capital and make it easier for them to carry out international transactions.
Syrias current banking system is in urgent need of reform. Current law places strict controls on foreign exchange and limits the transfer of money abroad. Nationalized in 1963 in the wake of the Baath party taking power, the countrys banking system comprises the Central Bank of Syria, the Commercial Bank of Syria, and various specialist outlets including the Agriculture Cooperative Bank, Industrial Bank and Real Estate Bank. The countrys archaic system has blocked the modernization of its atrophied financial institutions; the Commercial Bank has just $22 million in foreign currency reserves, according to government figures.
Instead, financial institutions are a balkanized landscape divided up to reward the late presidents political allies. More concerned with loyalty than economics, Hafez Assad adopted a policy of appointing close Baath party members and advisers to run the banks. In 1995, for example, Assad appointed Bashar Kabbara previously a presidential adviser as the new governor of the central bank. Kabbara is also closely linked to Economy and Trade Minister Mohamed al-Imadi, who supervises the functions of the central bank. According to Syrian bankers quoted in Middle East Economic Digest, Kabbara has no banking experience and is not considered a proponent of reform.
In contrast, the western-educated Bashar is attempting to set up a parallel banking system for international investors that will operate virtually independent of Syrias archaic system. The plan will allow Bashar to avoid alienating his fathers loyalists while at the same time attracting foreign investment and pursuing his policy of economic and financial reform. Maintaining his grip on power and appeasing factions both inside and outside the Baath party will be one of Bashars greatest challenges in his new leadership role.
On its face, Bashars plan should work nicely; however it is likely that some unintended consequences will occur. The new leaders plan may lead local and international banks to compete over the investment that Bashar hopes will find its way into Syria. According to the Ath-Thawra report, free zone authorities have already begun receiving applications to set up banks. Syrian Prime Minister Miro has even called on banks with part-Syrian ownership to set up and operate in the free zones. Successfully operating in a free zone will require a level of reform and fiscal transparency that most Syrian banks will be reluctant to meet. However, if they dont want to lose business, they will in essence be forced to reform.
The result: the late
presidents loyalists may withdraw or refuse to give their support for Bashar
even going so far as to challenge his leadership in order to preserve the status quo.
Bashars greatest challenge will come not from peace negotiations with Israel or
exercising authority in Lebanon; rather will come from the domestic front. Bashar
ultimately runs the risk of losing his fathers allies