[Landis Analysis] The following EIU economic overview (copied below) is good. One nit to pick.

Since the consolidation of Bashar al-Assad’s authority at the Baath Party Congress of 2005, it has become common for analysts to repeat the following wisdom: “[Assad] has entrenched his control, albeit at the cost of narrowing his power base.”

Here are a few examples:

1. “In the aftermath of the latest Baath Party Conference, the Assad family consolidated its grip on power by narrowing the base to its inner-most circles.”

2. Zisser in 2006: “the question of how long Bashar can survive remains valid given Syria’s internal discord and growing international isolation. Bashar has wrecked many of his father’s achievements, if not his life’s work. Syria is no longer the stable and strong state it was when Hafez al-Assad died. Threats to the regime’s domestic stability have increased…. Bashar must realize that delegation of power to family members is not enough to ensure security. Rumors of tension within the ruling family are rife as are hints that Asaf Shawkat and Mahir both have ambitions to replace Bashar. … The Syrian elite simply does not fear Bashar the way they feared his father…

3. Kirsten Maas and Heiko Wimmen of the Heinrich Böll Foundation: “It appears clear, however, that despite initial rhetoric hinting at reform, the power base of the regime has narrowed since Bashar’s succession to power, and is more and more restricted to the immediate Assad family and its entourage.”

I wish someone would explain how Assad’s base has narrowed? Is it because the old guard was jettisoned? i.e. Khaddam, Kanaan, Shihabi… These people didn’t support Bashar. They were trying to take control for themselves. Khaddam thought he should be president – not a very dependable social base! More important, however, Khaddam had no social base independent of his state position as V.P. If one wants to argue that with the defection of Khaddam, Bashar has lost Sunni support, I would have to chuckle. Today Sharaa is V.P. He is a Sunni and has as large a social base as did Khaddam.

Bashar jailed the 12 leading civil society opposition members. That is true, but they were certainly not part of his social base. On the contrary, they were calling for democracy and an end to the present leadership. We cannot count them as previous members of his social base.

Bashar has placed his brother-in-law in a principal internal security position to replace Bahjat Suleiman. OK, but is this narrowing his social base? No. The Mukhabarat leaders have always gone to candidates close to the president’s family. Rifaat al-Assad – Hafiz’s brother – was the main security guy for Hafiz for 14 years. Bashar is just replicating a working arrangement that has been in place in Syria for 40 years. This is not narrowing his base. Did Bahjat Suleiman, Bashar’s first security chief offer a broader social base than Asef Shawkat? No. He was touted to be Bashar’s “God father,” who helped him transition into the presidency – super loyal to father and son. He had a social base of Bashar.

Bashar has allowed his cousin, Rami Makhlouf to become Mr. 10% in the economy thereby supposedly allienating the Sunni business class which objects to the nepotism and, hence, have left Bashar’s social base. If this is the argument for a “narrower social base,” it doesn’t pass muster. The economy has been expanding at a steady clip since Bashar 2000, undergoing liberal reforms and seeing new foreign investment. The vast majority of this investment has gone into Sunni pockets, despite the emergence of Mr. Makhlouf as the central figure tying it all together and bringing it under the patronage umbrella of the first family. Sunni merchants are happy to have a sympathetic and capitalist friendly technocrat like Dardari as economy Deputy Prime Minister. They are happier now than they were under Hafiz, expanding the leadership’s social base. 

The “loyalty” and expanded social base this offers Bashar was on view for all to see during the campaign parties or ‘huflat” of the summer of 2007, when Bashar renewed his presidency. The Sunni magnates of Damascus turned out to fete the authority and leadership of the president. By consolidating power, Bashar broadened his social base. That is the essential verity of authoritarian states. The elites, realizing that there is no alternative to the present state, put aside their hesitancies and luke warmth in order to make money, carve out a future for their families, and embrace the central authority that they must make peace with. That is what has happened in Syria. Consolidation of power has meant the broadening of the president’s social base not its narrowing. The Iraq example has broadened the government’s social base immeasurably and helped the Sunni elites cast aside any Bushian dreams of democracy and freedom agenda’s for the time being.

I think one has to argue that Bashar al-Assad has broadened his social base over the last 3 years rather than narrow it.  

[end of commentary]

Syria: Economic Overviews, 2008-10-14,
COUNTRY VIEW: FROM THE ECONOMIST INTELLIGENCE UNIT, OUTLOOK FOR 2009-10

* The president, Bashar al-Assad, is expected to remain in power in 2009-10 and there is little threat to his rule. However, tensions within the ruling elite, exacerbated by external pressures, could prompt more political assassinations.

* Mr Assad will continue to try to reduce Syria’s political isolation, although any significant and open interference in Lebanese politics would alienate new interlocutors such as France’s president, Nicolas
Sarkozy.

* There is unlikely to be progress on negotiations with Israel, following the change of Israeli leadership and widespread public and parliamentary opposition in Israel to returning the occupied Golan Heights to Syria.

* The main policy challenge will be to offset the impact of declining oil production by increasing investment and encouraging entrepreneurship, particularly in sectors that will boost export earnings.

* Inflation will decline from its 2008 peak, but will remain high at 11.2% in 2009 and 10.1% in 2010. There is an upside risk to these forecasts, associated with how secondary inflationary effects work through the economy.

* The current account is forecast to slip into deficit in 2009, to the tune of around US$500m (0.9% of GDP); in 2010 the deficit will narrow slightly as export earnings increase.

DOMESTIC POLITICS: Mr Assad’s control of the country is supported by key elements in the security services and by the ruling Baath party, and his position remains secure, although the regime will face significant challenges in 2009-10. Since assuming power following the death of his father, Hafez al-Assad, in 2000, Mr Assad has continued the repression of local opposition groups and activists, and has appointed close allies to  key posts. This has entrenched his control, albeit at the cost of narrowing his power base. The core of the elite is largely drawn from Mr Assad’s minority Alawi sect, and is acutely conscious that to move against him would risk endangering the Alawi hold on power. However, there are tensions within the elite, which sometime result in political assassinations, more of which are expected over the outlook period as result of external pressures, particularly the UN investigation into the killing of Rafiq al-Hariri, a former Lebanese prime minister. (The assassination in August 2008 of Mohammed Suleiman may have been related to his role as an interlocutor with the International Atomic Energy Agency, the UN nuclear watchdog, in its investigation of Syria’s alleged nuclear programme.)

INTERNATIONAL RELATIONS: Since mid-2008 Syria’s international isolation has begun to ease, largely because of its support for the May 2008 Doha agreement between the opposing factions in Lebanon and its agreement to normalise diplomatic relations with Lebanon, but also because of its engagement in indirect talks with Israel, which are being brokered by Turkey. The early fruits of these developments have included financial assistance from Gulf Arab states and a visit to Damascus, the Syrian capital, by the French president, Nicolas Sarkozy. However, Syria’s diplomatic links with the region’s heavyweights, Egypt and Saudi Arabia, remain strained and there is no obvious catalyst for improvement over the outlook period. A rapprochement with the US would also be difficult, although the most likely next president, Barack Obama, has a stated policy of dialogue with enemy states, including Syria. However, Syria still considers Lebanon to be within its sphere of influence and Mr Assad is therefore likely to get entangled in fresh controversy in the run-up to the 2009 Lebanese parliamentary election and after it, if the anti-Syrian “March 14th” coalition emerges victorious. A further threat is the Hariri investigation, and the UN prosecutor is expected to release a list of suspects, which may include some senior Syrian officials, in early 2009.

POLICY TRENDS: Syria has been gradually reforming its centrally planned economy, a process that has been led by the deputy prime minister for economic affairs, Abdullah al-Dardari, and is expected to continue in
2009-10. The overriding policy challenge will be to offset the impact of the recent (albeit temporarily checked) decline in oil production by making established businesses more dynamic and encouraging investment and entrepreneurship, particularly in sectors that can boost export earnings.

As credit is likely to be difficult to secure in the context of the ongoing global financial crisis, Syria’s spending will be constrained by its revenue, which will entail fiscal prudence. The reduction in fuel subsidies in May 2008 was a significant step, but the simultaneous increase in public-sector salaries largely offset the fiscal benefits and will stoke secondary inflation. Although the introduction of a value-added tax (VAT) has been approved in principle, and would diversify government revenue, its implementation may be put off until late 2009 or 2010.

INTERNATIONAL ASSUMPTIONS: World GDP growth (at purchasing power parity exchange rates) is expected to slow to 3.2% in 2009, owing largely to the impact of the global credit crunch on the US and other OECD economies, before recovering to 4% in 2010. As oil demand in emerging markets partly offsets the slowdown in the OECD, oil prices will remain high, averaging US$96/barrel over the outlook period, although this is well below the July 2008 peak of US$147/b.

ECONOMIC GROWTH: Real GDP growth will accelerate to 5.4% in 2009, driven largely by a partial recovery in agricultural exports (following this year’s drought and poor harvest) and a pick-up in investment, both foreign and domestic, albeit from a low base. Growth will slow but remain solid in 2010, at 4.8%, still above the estimated average of 4% in 2007-08. Growth in private consumption is likely to weaken in 2009-10, because of a drop in disposable incomes (owing to the cuts in fuel subsidies and to inflation) and a decline in the contribution from Iraqi refugees as they run down their savings, find it more difficult to enter the country and return home in growing numbers.

INFLATION: Consumer price inflation, which the Economist Intelligence Unit estimates will have averaged 14.4% in 2008, is expected to decline but remain high in 2009-10. It will take some time for the secondary effects of the rise in fuel prices (owing both to lower subsidies and higher international fuel prices) and the 25% increase in government salaries and pensions to work their way through the economy. In 2009 a decline in oil prices and an easing of non-oil commodity prices will help to bring down inflation, to a forecast 11.2%. Any significant return of Iraqi nationals to their homeland could lower it even further by reducing demand pressures, although that is more likely to happen in 2010, when we forecast inflation will ease to 10.1%.

EXCHANGE RATES: The Syrian pound has been pegged to a basket of currencies based on the IMF’s special drawing rights (SDR) since October 2007, resulting in a marked appreciation against the US dollar. Although the new regime is less rigid than the previous peg to the dollar, the authorities remain unlikely to let the pound float freely, placing a high priority on exchange-rate stability. The dominant position of the state-owned banks and the Central Bank of Syria’s control over foreign-currency transactions (even as some laws are relaxed) mean that the regime is well placed do this. The pound has declined slightly from its May 2008 peak of SP45.8:US$1, and we do not expect any substantive change over the outlook period, with the pound weakening slightly as the dollar recovers against the SDR. As a result, the exchange rate is forecast to average SP47.5:US$1 in 2009-10.

EXTERNAL SECTOR: We expect Syria’s non-oil export earnings to rise steadily over the outlook period, but as oil export revenue will continue to account for over one-third of the total, the headline exports figure will fluctuate in line with oil prices. We forecast that exports will grow by 1.2% in 2009–as the rise in non-oil export earnings offsets the decline in oil export revenue–and by 10.2% in 2010 as oil prices strengthen. We forecast reasonably good harvests over the outlook period, but if drought persists it will have a significant impact on wheat and other food exports. Oil production is increasing at a number of small fields so that, despite the ongoing decline in the larger mature fields, overall production will increase slightly in 2009 to an average of 383,000 barrels/day (b/d), declining to 375,000 b/d in 2010. In any case, the net impact of oil on the trade account is relatively neutral because Syria is now importing almost the same volume of refined products as it exports in crude oil. However, non-oil exports are continuing to benefit from strong
regional demand and the relaxation of foreign-exchange controls, which has led to more exports moving out of the black economy and being officially recorded. Import spending growth will remain strong over the outlook period, partly because of the ongoing process of tariff liberalisation, but also because of healthy demand for capital goods related to some large infrastructure and construction projects. With all these factors taken together, the trade deficit will widen to about US$900m (1.6% of GDP) in 2009, before narrowing to about US$650m (1% of GDP) in 2010.