From Infitah of Abundance to Infitah of Poverty - Essay Example

Number 19 May 2009 From “Infitah of Abundance” to “Infitah of poverty” Syria holds a very crucial position in theMiddle East. Mainly an agricultural country, despite of its 65 per cent desert and semi-desert land, though, Rains produce the crops like cotton, barley, wheat, fruits and vegetables. However, agriculture is vulnerable due to drought despite all the efforts for developments in irrigation schemes and rural life up gradation in Hafiz al-Asad’s regime. During WW1, Ottoman Empire integrated and Syria got independence in 1946.Beside being a democratic state, the power was concentrated in the hands of rich. An Arab nationalist, Naseer’s dictatorial treatment with Syrian economic activity brought about the rebellion from army in 1959 and UAR (United Arab Republic) dissolved. UAR was a weak unification of Syria and Egypt as a result of western pressures for adopting neutral stance about Baghdad pact.1 Baathists were more aggressive in their control and army personnel gained more ground in party. Economic power was in the hands of ruling elite and shifting to military. Basthist party and Syria united apparently in 1958 but Hafiz al-Asad was also a part of this union. According to George; This unionist marriage was unhappy and in September 1961 it ended with the rightist putsch in Damascus. After 18 months of turmoil in the country…In 1966 the radicals staged an intra party coup. Syria’s resounding defeat by Israel in the June 1967 was, in which the Golan Heights were occupied, weakened the militant…The climax was another putsch stages by Asad, then defense minister, on 16 November 1970.2 Hafiz al-Asad exploited the 1967 defeat by Israel in order to unite Ba’ath part and military wing under Alawi clan, i.e, rural shi’a minority, but after Asad, it has been at the top of Syrian society. Ba’athist coup was encouraged initially but it showed little results; few banks and industry was nationalized, land reform extension and state established a monopoly in 1963.However, these steps were biased and to target elite to curb the anti-regime activities in 1964,and in case of land reforms, to bless Baathist coup origin, i.e., peasantry. For development, an intensive program was developed in which state investment was established to be the key driving force of economic activity in all sectors. Agriculture was focused in order to raise the living standards in rural Syria, and encouraged to run by state irrigation schemes and import substitution was boosted. Roads, railways construction were planned in collaboration with the Soviet Union and Eastern bloc with the help of closer political and military affiliation with Moscow.3 On the other hand it is believed that Asad was a dictator with authoritarian approach with little or no concerns for people. As Volker Perthes stated; The state does not, despite its deep penetration into society control, let alone regulates, all spheres of life. The state under Asad’s regime has become authoritarian, not totalitarian. There is no all-encompassing ideology, which state and regime would offer or try to enforce on the population.Ba’athism and Arab nationalism have been watered down so as not to stand in the way of pragmatic realpolitik of the regime…The regime demands that everyone pay respect to its symbols and refrain from questioning the absolute leadership of the President…the regime does not, however, prescribe what people should believe…4 Despite being an agrarian country, Syria was using most of her revenues on importing food stuff, as a result of industrialization it turned into consumer goods imports by 1970. This scenario increased the trade deficit and formulated a foreign exchange crisis. State owned establishment and suffocation in elite got the chance to re-establish capitalist society due to this crisis.Asad’s regime never intended a centralized economy or private sector empowerment, though, improved state-citizens relationship and economic liberalization was introduced initially. Syria’s 1st infitah started in 1971 with sharp effects in 1973 and in 1980’s another infitah followed which resulted in state and private relationship and change in economic policies. Asad launched the first attempt at liberalization of economy in 1973.It was ostentatiously referred to as ‘the infitah [opening] of abundance’ (1973-1981); the step was intended to step-up the rate of exploitation by reconstituting rural and urban business scenario. In rural Syria, land reform allowed middle class farmers to device a partnership with wealthy farmers and agribusiness on the basis of profit sharing on the disposal of low wage and rural labor.5However, the government and civil elite had more powers through which they discriminated the nationalized businesses like oil, banking, real-estate, manufacturing, and mining. Economic growth through mixed economy creation was the ultimate target of this initial liberation in some specific areas like tourism and agriculture, in order to give a boost to rural areas specifically. New constitution was devised in 1973 which declare president to be the ultimate power and also Ba’ath Party is guaranteed to have a leading role. Party restructuring and administrative and military and intelligence set up took place in order to bring more and more Syrians in government control. As a part of the process Asad organized the society into a series of functional organizations. At the top of these functional associations were the trade unions, the Peasant Union formed in 1964, professional association of lawyers, engineers, doctors and journalists and their leaders were not elected by members but appointed by state.6 New laws were introduced which enhanced the role of private sector in economy which represents infitah to some extent, but the liberalization was very limited as actual liberty was only given to the companies who were in joint ventures with state. 2nd infitah was different than the 1st one, as earlier infitah was based on Asad’s philosophy of establishing his kind of socialism in disguise of economic growth. Second infitah was a reaction of the serious economic crisis in 1986, due to poor economic performance and international economic ups and downs. The crisis of 1968 was predominantly one of foreign exchange and balance of payments, after many years of declining income from trade and remittances, growing government debt, low foreign investment, and a fall in oil prices. Added to these problems was a rapidly growing population (3.4 per cent per annum), and drought. The result was an economy in stagnation, with a growth rate of only about one percent per annum in the mid-1880s-compared to around 10 per cent per annum in the 1970s-and thus there arose the need for significant changes to the economy.7 The crisis brought a totally opposite infitah in Syria which was not of abundance but of poverty. Many broad level macro economic reforms were introduced in law; exchange rate reforms, private sector expansion, trade liberalization, reduction of subsidies and price and exemption adjustments. Lucrative incentives were given to productive foreign investment. However, Syrians abused these laws and used it for personal advantage.8 Hafiz al-Asad did transformed Syria by his longest regime from 1970 to 2000 till his death. In his regime Syria lost another was against Israel in 1973.An internal Muslim rebellion was curbed in 1982.On US dictation Syria get involved in complicated matter of Lebanon with the participation in First Gulf War in 1990.In addition to that Asad’s two economic liberalization models faced limited success.However, political instability and international environment can not be neglected in this regard. As Rachel describes it; Without understanding the tumultuous and unpredictable nature of Syrian politics throughout the 1950s and 1960s, it is impossible to appreciate fully the achievement of Asad’s 30 years of uninterrupted rule and the risks basher inherits with leadership…although domestic struggle continued after Asad took power in 1970, most notably the 1982 massacre in Hama, Asad was able to impose a measure of stability on Syrian political life that eluded previous leader…9 Perth states it as ‘a model of authoritarian-corporatist group representation’, it is observed that corporatism was a not a long known phenomenon but class differentiation and struggle was thoroughly recognizable. According to authoritarian corporatism society is an organic body with particular parts performing specific function under one control, i.e., government. This model divide social groups into non-competitive, differentiated and with specified hierarchical associations which constitute the group’s and state legitimate interests. State can entrust these social groups as official institutions in accordance to their functional domain. It provided them with the chance to allow a political refinement though people participation without actually adopting democracy.10 Capitalism flourished in Syria with the changes in tourism industry. Syria is a potential destination of tourist from all over the world with easily approachable attractions. Rural and urban areas with traditional industry have lucrative benefits in tourism, which never proved as successful. According to Grey, the reasons to focus on tourism during Asad’s period were; The potential for tourism to generate foreign currency is important, all the more so in states…suffering balance of payment problems. Second is the fact that tourism is labor intensive, and creates employments throughout the economy; tourists spend money on hotels, transport, and meals, but also on a wide variety of goods and services. Third reason is the fact that the tourism industry does not, on the whole, require expensive or complex technology or a highly skilled workforce despite the need to operate airline service.11 Syrian tourism generates revenues are not as lucrative as of Israel, Morocco or Egypt but joint ventures with Lebanon and Jordan are promising. Therefore, tourism is estimated to become top three sources of employment and revenue generation. Tourism was important for a country like Syria as tourists are almost no threat to regime or stability in any case. With a slow start, tourism industry gained momentum during second infitah (1986-2000).Through hotel and restaurants ownership gave rise to a new class emerged by reaping the benefits of investment in tourism. They were relieved from labor laws which allowed them to discharge anyone according to the need.12 Asad introduced several reforms in order to revitalize the economy as well; To attract private investment through a major economic package in 1994, particularly targeted at wealthy Syrian expatriates, the same year, the EU lifted its arms embargo on Syria, but no amount of soothing noises could persuade potential investors to risk losing all in the economy’s bureaucratic morass. Roads were in parlous state, private banks did not exist, and possessing foreign currency was a crime and funds needed for schools and hospitals went to military. Thousands fled Syria for jobs in Lebanon. By 1999, exports had dropped by 20% and agriculture production had halved.13 ‘The oil money, more than capital-starved Syria had ever precisely dreamed of, was a sort of consolation prize, feeding an investment and consumer boom and obscuring the disastrous consequences of the October War.’14 Foreign debts are one of the major factors of economy deterioration. The Economist Intelligence Unit declared Syria as “Severely indebted,” for the country’s outstanding debts amount to approximately $22 billion, and are growing about $ 1.0-1.5 billion a year. The bulk debts are in default …the current debt level is about five and a half years worth of Syrian export earnings; just pay the interest service on this sum id money would take up perhaps a third of Syria’s export earnings… there foreign debts translate into a burdon of $11,000 per Syrian family…debts may in fact be twice as large as Syria’s GDP when the true value of the pound (Syrian) is taken into consideration.15 During the smashing period of October War big mistakes were made due to hasty decision making, it was due to the fact that Israel brought down deep damages to Syrian economy. In an order to make improvement quickly several projects were launched in just two years 1974-6.Such unprofitable schemes were launched because of the fear of loosing funds according to the then premier Mahmud al-Ayyubi. Another draw back was most of the plants were erected with the interest and profit of wealthy class only which enabled them to earn from foreign suppliers, so industrial gains were limited to a specific class only. Asad’s dream of liberalized economy turned out to be enriching only few people on nation’s expense. Such schemes to boost economy proved to be ‘costly white elephants’. For example, notorious Dayr al-Zur $110 million paper plant which was never planned and was constitute of series of blunders. So are other plans like ammonia-urea plant at Homs and over ambitious plan of building four sugar refineries. Unfortunately farmers stopped growing wheat and cotton in order to meet beet production in order to get benefits from government incentive schemes and with the downfall of international sugar rates the whole industry collapsed in 1980.Beside these drawbacks, there were some clear successes as well, for example discoveries of quality crude oil near Iraq border and gas reserves in desert of Palmyra and phosphorus production touched the level of two million tons in 1987 and the potential to generate five million tons per year. State owned construction companies owed economic shift as well. There are some of the finest buildings and 150,000 employments on state owned construction company, Milihouse under the leadership of Khalil Bahlul, an extremely energetic discovery of Asad.On his credit there are numerous achievements; besides spectacular construction work throughout Syria, introduction of modern management and accounting technique in public sector, manufacturing of cement, marble, ceramics, stone, wood, aluminum frames, and last but not the least injecting motivation in people to embrace modernity. Milihouse was said to be an empire and just need a flag and anthem.16 One of the major factors of economic infitah to poverty instead of planned ‘abundance’ is strictly limited liberalization. Plaut describes, ‘the infitah programs consist of cosmetic reforms reminiscent of Lenin’s New Economic Policy (NEP) (restricted to such things as allowing Western companies to open hotels in Damascus); Asad’s idea of privatization …with regime always in control.’17 State controls all resources, banks, import and export, have monopoly, only largest employer and controls or regulate even the smallest financial activity. ‘Syria economy is centrally planned, rigid, backward, impoverished and dilapidated. An all-powerful central planning bureaucracy fixes prices and owns the bulk of industry in the country.’18 ‘The International Monetary Fund (IMF) says that Syria has the worst array of controls to dismantle of any Mediterranean economy.’19Everything is under public sector and no air for private sector to even breathe, let alone survival. The Economist Intelligence Unit identifies Syria’s finical services as “poor, unsophisticated and a serious obstacle to economic development, and reported that most Syrian businessmen use banks in Lebanon and Cyprus to do business.”20This nationalized production, unevaluated plans and investment in unprofitable business and over-employment caused Syria to lose 2 billion (Syrian pounds).21 Approximately 70 per cent of export earning is through oil production. Drop in oil prices in international market effected Syrian economy badly. Average price of per barrel oil dropped 35 per cent in 1998; production of oil also decreased substantially which was on peak in 1995.Aid, loans from Gulf countries as well as transfer payment effected by oil price drop, overseas Syrian worker hold the payments for long time. Syria can be compared to the pre-collapse European communist regimes, which were also victims of flourishing illegal “parallel economy”.22 In addition to lowering income through capital flight, trade and remittances, the biggest factor in infitah to poverty is the brutal act of ceasing foreign investment through state’s confiscatory policy. As Steven Plaut states it; The regime’s policy of insisting that Syrian enterprise converts hard currency into Syrian pounds at the official rate goes far to explain the lack of foreign investment; it amounts to a confiscation of some 80 per cent of the foreign-exchange value. There realities explain why the new investment law…had poor results, for it still required foreign enterprises to convert 25 per cent(instead of the previous 50 per cent) of their foreign earnings to the government at these confiscatory rates.’23 Besides nationalization, over ambitiousness, corruption, monopoly, kinship and connections unrealistic approach towards tourism (main focus of 1st infitah) and false data and information and ceased communication are also a leading factor in economic downfall. Ralph Begleiter writes in Washington Post about the situation in ‘Despite its periodic trumpeting of new programs of infitah …not allow any serious moves in this direction; at this time, access to the Internet is strictly controlled by the government to no more than 1,000 carefully selected individuals-and even they are subject to censorship.’24The situation made it impractical to business in Syria as 20 percent of their revenue is snatched by state before even paying taxes and production cost. According to Perthes, ‘Business taxes until 1991 were generally 90 per cent if income of higher’, it make a total of taxes 100 per cent taxes on export unless investor had some link with state.25 Despite of great will and ambition displayed for economic growth, economy is the sector most sacrificed and neglected for personal interest and politics. ‘Economic considerations are subordinated to political priorities, which remain, for the regime, the retention of power.’26 Another factor lies in the fact that new reforms and laws (instead of giving a boost to dead economy and negative growth), proved to be failed or less useful and no considerable lesson has been learnt by past mistakes. It is very clear that infitah of abundance had never actually happened c but apparent growth period proved to be breading ground for infitah to poverty in Asad’s period. Work Cited Economist Intelligence Unit (EIU), Country Report-Syria, 1996. Gray, Matthew, “The political economy of tourism in Syria: state, society, and economic liberalization”, Arab Studies Quarterly (ASQ), spring. 1997. George, Alan. Syria: neither bread nor freedom .London: Zed Books Ltd, 2003. Ibrahim, Aoude G, rev. of “the Political Economy of Syria under Asad”, Arab Studies Quarterly (ASQ), Sep. 1997. Joffe, Lawrence, “Mahmoud el-Zou’bi”, Guardian Unlimited 31 May. 2000. Kienle, Eberhard, ed., Contemporary Syria: Liberalization between Cold War and Cold Peace. London: British Academic Press, 1994. Perthes, Volker. The political economy of Syria under Asad .London: I.B.Tauris, 1995. Plaut, Steven “The collapsing Syrian Economy”, Middle East Quarterly, Sep. 1999, 18 May 2009 < http://www.meforum.org/476/the-collapsing-syrian-economy>. Rachel, Bronson, “Syria: Hanging Together or Hanging Separately”, The Washington Quarterly, Sep. 2000:22. Seale, Patrick, and Maureen McConville. Asad of Syria: The Struggle for the Middle East. London: I.B Tauris, 1990. 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