The banking reform in Syrian Arab Republic During the period 2000-2010

Prof. Dr Moustafa El-abdallah Al Kafry,
2022 / 3 / 26

Banks in Syria, which were nationalized when the ruling Arab Socialist Baath Party took power in 1963, are all owned, operated and managed by the government. There has been no law on banking secrecy in the country. "We will take the necessary action to issue a law on the banking secrecy soon and continue to work to improve the investment climate in Syria," The government in Syria would continue its measures to establish the country s first ever-stock market and to continue to facilitate local and foreign private investment "We will continue to take more actions to welcome the investors and provide them with the services they require,".
Increase funding for local companies:
Syria’s primitive, state-owned banking system offers only basic services, is highly ineffective, and offers loans almost exclusively to the public sector. As a part of the government reform plans and as an attempt to increase funding for local companies, foreign banks were for the first time allowed to operate with restricted licenses in-limit-ed free zones in April 2000. So far, only three banks—all Lebanese—were issued restricted licenses, which only allows banks to lend money to businesses operating in the free zones. In August 2000, the World Bank was for the first time welcomed by the Syrian government to advice and consult on how to attract investments to the country.
Political changes after the Second Gulf War:
(The banking system was no exception to the severe economic situation in the late 1980s. Political changes after the Second Gulf War, the opening of the peace process in Madrid, and the establishment of the unit-polar World New Order after the collapse of the Soviet -union-, all urged the government to embark on economic reform. The argument was that Syria must modernize and develop its economy so that it will be able to compete with Israel whenever peace is achieved in the Middle East. The first time in years that the private sector backed by certain governmental departments started to talk about the need of private banking and a stock market in Syria was in 1991, after late President Hafez al-Assad issued the famous Investment Law No. 10. To many investors, the law included several minor economic measures clearing some bureaucratic complexities and giving more incentives to local and foreign capitals, but that was a part of what they hoped for. They asked for banks with more financial and commercial services, better efficiency, lower commissions, extensive credit capabilities and flexible interest rates. They also wanted financial institutions to finance their projects, especially that international banks refused on many occasions to finance Syrian projects due to the lack of familiarity and distrust of the Syrian regulations. It was clear that the existing state-banks would not be able to meet the needs and expectations of local and foreign capital. The government tolerated the harsh criticism of its banking system, giving a signal that eventually joint venture´-or-private banks would be allowed in the country.)
Approved a bill that allows joint venture banks:
Parliament on March 2001 approved a bill that allows joint venture banks between the government and private sector, ending 40 years of government domination in the banking sector, the official Syrian Arab News Agency reported. According to the bill tabled by the Ministry of Economy, Syrians must own at least 51 percent of shares in the private banks. Foreigners can hold the remainder. State-run banks would continue operating after the law takes effect.
Law 28, Stipulating the permitting of creating private banks:
The Syrian government issued Law 28, Stipulating the permitting of creating private banks in which Syria s banking system, the Syrian Insurance Company and other saving institutions have a share of 25 percent of capital. The law, earlier approved by the Syrian Parliament, stipulates that would be created banks should operate under the supervision, and regulations of the Central Syrian Bank. The law provided that all the banks shares have to be under circulation and owned by Syrian Citizens´-or-Syrian institutions.
The Central Bank of Syria is to grant the necessary permissions for those interested in establishing the banks within a three-month period after their application for this purpose-;- the authorization to create the banks is cancelled if they weren t to operate within a year. Would be created private banks could open branches in other Syrian governorates provided the Central Bank of Syria would have agreed.
The banks’ capital should be no less than 1500 million Syrian Pounds, where the Syrians residing inside Syria would pay in Syrian Pounds while for those outside it would be in foreign currency. The Syrian government also issued Law 29 subjugating all Syrian Banks to secrecy opening banking accounts known only for their owners.
The Syrian government taken measures and issued decrees have so far motivated and boosted financial transactions, dealings not to mention their huge impact on the ongoing reform and modernization process.
Multi-tier exchange-rate regime:
The Syrian government follows a multi-tier exchange-rate regime, where an official rate of (S£11.225:US-$-1) is maintained for favoured importers-;- an (S£23:US-$-1) for customs-;- and a ‘neighbouring countries’ rate at (S£46:US-$-1.) The black-market rate has remained suspiciously close to the “neighbouring rate” at an (S£46-47:US-$-1,) and points to intervention. The ‘neighbouring countries’ and the black-market rates are expected to stay close to each other. Plans for a governmental exchange company is under way, and the exchange of money within Syria at rates other than the official (S£11.225:US-$-1) is no longer prohibited.

Faculty of Economics - University of Damascus

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