Bank Lending and
Development Financing
Dr. Riad ALABRASH
Syria faces many challenges in the next years (cooperation,
partnership, and free trade treaties with Lebanon, other arab countries,
Europe, and the world). Development financing is related to saving which
depends on income level and money stability. Long and medium term financing
aims to transform savings into real investments.
The article treats the subject within the supply (saving) and demand
(investment) visions. The supply is compound of local saving, foreign saving,
and money creation. Local savings have several categories:
¨
Personal
savings including special savings that are inelastic to the interest rate
fluctuations, low income and middle fortune savings, high-income savings and
rental bourgeoisie. In Syria, the latter does not exist. Post Saving Fund,
Popular Credit, and Real Estate Bank compete to attract syrian savings, in
addition to the private sector: money collectors (accused to waste 300 million
dollars through informal investment channels), merchants etc. Despite the
permission to make deposits in foreign currencies, results were mediocre (until
1999, only 19 million dollars of deposits belong to 5500 depositors). In 2000,
householders savings in syrian banks include 200 m$, 1200 m$, 170m$, 400m$, and
100m$ belong respectively to low income class, middle-income class, farmers,
middle and high-income in the real estate sector, outside the banking system.
¨
Business
sector savings include the savings of the public, mixed, private, and informal
sectors.
¨
Public
budget saving results when receipts exceed expenses. Most syrian budgets show
deficits (generally financed by local borrowing from the Public Debt Fund,
foreign aids, or borrowing). The article mentions the inexactitude of available
public figures.
The foreign saving, in 1998, is estimated to 100 million dollar (less
than 1% of private investment in arab countries, less than 0.1% of arab
investment abroad).
Available funds for development in Syria approximate 6.7 b$ (excepting arab
and international loans supposed to increase 10% annually). This is sufficient
to create a marginal growth of 134-235 m$ a year (1-3 or 1-5 capital
coefficient). This may realize 2000-11650 of marginal increase in GDP per
capita (insufficient to maintain the current average of individual income).
Banking credits create money and the financing opportunity to sustain
investment. These resources include sovereignty loans (incoming from former
ex-eastern bloc with generous conditions and long or unlimited term), arab and
foreign governmental aids, loans from arab and foreign governmental and
quasi-governmental development funds and banks.
In developing countries, borrowing from central banks disguises the
misleading of economic policy. These countries are experts in hiding,
manipulating figures, or postponing their announcement.
On the demand side, if not invested in real or financial capital asset,
the saving will be useless. Income from speculation can not help in
development.
Many objective circumstances rule the development financing in Syria
(such as the internal and external political circumstances, economic
consideration, social factors).
Investment environment suffers from multiple exchange rate, instability
of money, lack of adequate statistics, degradation of public sector etc.
The lecturer presents proposals about the priority of economic factors,
the attitude vis-à-vis foreign and local private investments, the relation
between finance, economy, international trade, and information technology, the reform
of tax system etc.
In his comments on the article, Dr.A.KANAAN focuses on the inefficiency
of financing in Syria because of credits orientation on behalf of public
sector, lack of credits to the private sector, the dysfunction of banking
mechanism etc.
According to him, government did not update its exchange rate, credit,
and interest rate policies. The government still finances agricultural
subsidies (not included in general public budget) by issuing money. The delay
in budget publishing affects the bulk and the investments productivity. He
criticized the public policy concentrating on tax exemptions on the expense of
a healthy investment environment. Syria remains undecided about entering the
WTO and the partnership with Europe.