Abstract

The historical approach of Syrian economic development shows that external transfers of funds (and aids) is correlated to investment rate and economic growth. In 1970s, Syria has benefited from financial aids and transfers incoming from Syrian workers in the Gulf. This decade has witnessed high rate of investment and employment... In the next decade, external flaws of funds have been decreased accentuating the economic crisis (high inflation rate, unemployment…). After the collapse of eastern bloc, circumstances in Syria have been changed: new financial aids, substantial increasing in oil production, many important roles to the private sector (Law N10). But the new boost was apparently insufficient because of the quasi stop of aids since 1997 and the continuous conservative policy in the country.

The article treats the subject within two axes:

1. How to finance investment?

2. Evaluating the investment performance in Syria.

The first axe leads to the study of the financial structure. The article focuses, in the treatment of the formal financial structure, on the Syrian banking system. This system (nationalized during the sixties of the last century) still orients banking resources according to the state economic and social policy. Interest rates are fixed since 1981. Generally, commercial activities benefit from the major parts of banking credits. Most of these credits are allocated to the public sector. The article shows that this policy might be acceptable in the past. But the increasing private investment rate (becoming higher than the public in 1990s), makes it difficult to explain the continuous substantial banking credits on behalf of the public sector. Statistics and graphics show that economic development in Syria is independent of financial development.

Concerning the informal financial structure, the article shows the problems of the double monetary circle. Syria has a high rate of currency in circulation outside banks. The article confirms the inefficiency of informal structure (specialized in financing small activities) because its components are scattered, and they do not cooperate together. This decreases the volume of saving available and essential to finance big projects. Informal structure has flourished because of the deficiency of the banking system. This deficiency is due to the insufficient banking infrastructure, the lack of banks flexibility, the tax evasion, the religion and the social traditions, the important rate of illiteracy, the fixed interest rates, and the low average of purchase power.

In addition to the insufficient saving, the low productivity and the increasing needs lead the government to seek other resources (aids, immigrant transfers, foreign funds, increasing taxes, and issuing money). The article mentions the divergence between the government statements (characterized by high rate of debts but an increasing rate of deposits (multiplied by five during the 1990s)) and the economic public sector statements showing more debt with low deposits.

According to the International Bank, there is a continuous increase in the syrian external debt (16 billion $ of long term debts in 1994). And the debt service is one billion dollar a year.

The lecturer does not think that the problem is technical. He reminds that banks in developed countries have been worked with equipment less developed than what national banks have now, but they were much more efficient.

The second axe assesses Syrian development expenditures and focuses on public investments (the budget). Despite the increasing investments, results remain mediocre. The article shows the divergence between planned and actual investments (bias of 60% in housing and manufacturing). Albeit the increasing number of students, the budget statistics in 1990s shows the decreasing in investments in education (became less than sport investments). Investments in health care are almost fixed.

The article treats also the housing problem and tries to explain why houses were very expensive and why prices have fallen substantially in 1990s. The lecturer analyzed the scholar leakage, and mentioned that 7% of the elementary school students quits scholar system (20% in the preparatory school).

Finally the article emphasizes the importance of a global and a dynamic vision for the future investments. It calls for a radical change in tax system in order to stimulate investment in different way from the classic total tax exemption. The new vision must be compatible with the new economy.

In his comment on the article, Dr.Ghassan Ibrahim insists on the importance of free and responsible mind in order to win in investment and development. He thinks that the social dimension is the keystone in economic, political and cultural dimensions. He gives an essential role for the human resources to make the transition from low wage and under-skilled industries to others characterized by high wages and developed skills. He thinks that the best strategy of investment is in the knowledge. He is in favor of the state (public) property rather than the private property. The former must regulate the latter in order to attain the real social economic development.