Syria - Overview of economy

According to the World Bank, in 2000 the Syrian economy was classified as a low middle-income economy with a gross national product (GNP) per capita of about US$1,000. Although it does not possess the extensive natural resources of its richer neighbors, Syria was able to sustain one of the most integrated and productive economies in the region for several decades after gaining

its independence in 1946. Following unification with Gamal Abdel Nasser's Egypt under the United Arab Republic and the rise of the Ba'ath Party, however, socialism became the official economic policy in 1958. Although Syria left the United Arab Republic in 1961, government-sponsored land reforms and the nationalization of major industries and foreign investments had confirmed the new socialist direction of Syria's economic policy by the mid-1960s.

During the 1970s, Syria achieved high rates of economic growth. The dramatic rise of world oil prices from 1973 to 1974 led to increased production in domestic refineries. Moreover, higher prices for agricultural and oil exports, as well as the state's limited economic liberalization policy, encouraged growth. The October War in 1973 and later ostracism of Egypt from the Arab League due to its peace agreement with Israel put Syria, as a front-line state, in a position of leadership in the Arab-Israeli conflict. Because of this, Syria began to receive substantial quantities of foreign aid from the oil-rich Gulf states. Besides these higher levels of aid, Syria's economic boom was furthered by increased remittances from Syrians working in the oil-rich Arab states. By the end of the decade, the Syrian economy had shifted from its traditional agrarian base to an economy dominated by the service, industrial, and commercial sectors. Massive expenditures for development of irrigation, electricity, water, road building projects, and the expansion of health services and education to rural areas contributed to prosperity.

By the mid-1980s, the country's economic climate had shifted from prosperity to austerity. Syria's economic boom collapsed for a variety of reasons: a reduction in worker remittances, declining world oil prices, lower export revenues, agricultural devastation due to drought, and costly military involvement with Lebanon. A drastic decline in Arab aid, due to Syria's support for Iran against Iraq in the Iran-Iraq War (1980-88), also contributed to the country's economic woes.

The final collapse of Soviet Russia after 1989 left Syria without the generous Soviet economic and military aid on which it had depended. Syria did receive aid through substantial financial rewards—in the form of large injections of credits from Saudi Arabia, the Gulf states, the United States, the European Community, and Japan—for its decision to support the coalition forces in the Gulf War of 1991 against Iraq.

Agriculture remains the dominant sector in Syria, yet only 20 percent of arable land is irrigated. Although Syria has sufficient water supplies, the great distance between major water supplies and population centers poses serious distribution problems. The water problem is exacerbated by rapid population growth, industrial expansion, and increased water pollution. Oil production is leveling off, and the efforts of the non-oil sector to penetrate international markets have fallen short. A vibrant black market , smugglers, corruption, cumbersome bureaucracy, and inefficient state-owned enterprises are huge barriers to growth and development.

Besides these economic burdens, Syria suffers from a substantial external debt , which was estimated about US$22 billion in 1999, including US$10 to 12 billion owed to the former Soviet Union and US$900 million to the former East Germany which many observers doubt will ever be repaid. Much of the US$22 billion owed dates back to the Cold War (a period in history, lasting from approximately 1945-89, characterized by the arms race between the United States and former Soviet Union), stemming from arms transfers. Russia and Germany argue that the debt should be paid, but Syria claims that the debt is no longer valid because the predecessor states no longer exist.