Under Pressure, Syria Ends Economic Liberalization, Worsening Outlook

One of President Assad's rare progressive initiatives, an effort to open Syria's economy has come to a halt under domestic protests and international sanctions, threatening to add to the country's political woes


Syrian President Bashar al-Assad's face is displayed on a street ad reading "Together we build." AP

DAMASCUS, Syria -- Over the last two weeks, as forces loyal to Syrian President Bashar al-Assad slaughtered protesters, provoking outrage across the globe, the European Union and White House announced sanctions against Assad and leading members of his regime.

Syria's government howled in anger. "Today, the Europeans have added a black page to their record of colonialism in the region," said the foreign minister, Walid Muallem, adding that the measures would "harm the Syrian people."

Analysts say that Mr. Muallem is wrong, the sanctions will have limited effect on Syrian citizens. But the country's struggling economy and a gaping rich-poor divide both help explain why protests there happened in the first place. Sanctions or no, the chaotic, isolated new Syria will have serious financial problems.

Until protests began and were bloodily repressed two months ago, tourists were a growing source of Syrian revenue, with 16 percent of the working population in the hospitality sector and millions of visitors bringing in valuable foreign currency.

But a crackdown on protests that activists say has killed at least 850 people has thrown parts of the country into violent unrest, and most embassies advised their citizens to leave at once.

In the streets where Arabic students and backpackers used to buy Oriental knick-knacks, there are only plain-clothed security forces and grumpy shopkeepers.

The National Museum in Damascus, for years a joke with visitors for its enigmatic signs and gloomy displays of priceless Roman statues, is currently getting a facelift, and workers are busily painting and decorating bright new galleries.

But aside from Syrian art students drawing in the sunlit sculpture garden, there are scant visitors to admire the new look, nor are the bored attendants expecting many this summer.

"People do want change, but Syria was growing," said one young man in a ceramics shop in Damascus. "Now was not the time to bring down the government -- this year was going to be such a big year for Syrian tourism." He and many other shopkeepers said business was terrible. Hotel owners have had to fire waiters and cleaners.

The death of tourism is only the first sign of the economic devastation that recent upheaval has inflicted.

Since Bashar al-Assad inherited power from his father Hafez in 2000, Syria has undergone a degree of economic liberalization; it has built trade relationships, particularly with Europe and neighboring Turkey, and encouraged private banking and business.

The national GDP has more than tripled from $20 billion in 2000 to over $60 billion last year. For many people, particularly the urban middle classes, life has changed enormously.

The proliferation of banks and credit allowed people to buy things -- cars, houses, electric goods -- that they could not previously afford. Fewer trade restrictions have meant that there are far more of these goods on the market, from China and Turkey among others.

The main architect of the more open economy was Abdullah al-Dardari, deputy prime minister for economic affairs since 2005, who speaks English and was popular with the reformists at the World Bank and the International Monetary Fund.

But he was not so popular among poor Syrians. Oil revenues in Syria are drying up fast, and the reforms were paid for by withdrawing fuel subsidies and state provision of education and healthcare.

"Of course people feel they have been hurt by the gradual withdrawal of the state from areas they used to be involved in," said a Damascus economist who asked not to be named. "The gap between Syria's rich and poor has grown as the economy has liberalized." Many protesters also cite endemic corruption as a primary grievance, pointing out that friends and relatives of the president control huge chunks of the economy.

Dardari was not part of the new government hastily assembled by the president when he unveiled concessions to the protesters, a move that the economist called "highly symbolic." The message, he said, is that Syria is moving back toward the old social policies.

Outside the fast-growing and increasingly cosmopolitan cities, Syria's rural majority have seen living costs rise as fuel prices have made transport more expensive. Markets flooded with foreign goods have made manufacturing less profitable and years of drought have left farmers in some areas starving.

It is these have-nots, said one Western diplomat, who have been driving the protest movement. Unlike in Egypt where the urban, web-savvy upper-middle class played a major role in protests, many of Syria's city-dwellers have seen their lives improve in recent years.

Some young elites have railed against the brutal, undemocratic regime, he added, and more would if they were not so afraid, but the protests have mostly been in poor towns and cities, sparked by economic woes.

It was these disaffected Syrians that Assad sought to soothe when he unveiled a program of new economic measures last month, including higher wages for civil servants, new jobs, more subsidies, and a social fund.

"In the long term they can't afford the reforms," the economist said bluntly. Dardari's recently unveiled five-year-plan was due to improve infrastructure and provide jobs in huge projects, but relied on more than $50 billion in investment over five years, largely from outside the country. The money is now unlikely to materialize -- investors are unwilling to put money into a country as unpredictable and unpopular as Syria is now.

The protests have caused other problems. The trucks that drive goods through Syria to the Arabian Peninsula have slowed to a trickle, cutting off a valuable source of revenue in border taxes. Consumer confidence has slowed; scared people do not buy much. The government has announced it will increase its deficit for the moment, a risky route for a country with no new sources of income on the horizon.

The end of liberalization will make it difficult for the government to tackle structural problems, said the diplomat, and ensure more unrest in future. "With the root causes not dealt with, discontent will happen again unless genuine reforms address the issue," he said.