Reforming banking and monetary system in Syria

Dr.Mohamad ALATRASH

Reforming Banks and monetary system is a part of the global economic reform. This reform leads to these subjects:

Central Bank of Syria

Established in 1953, the central bank has been established to sustain the political independence through issuing money, being the government bank... The Counsel of Money and Credit (CMC) administrates the bank. According to the Basic Monetary System (BMS), issuing money must be covered by Public and Private debts in addition to a minimum of gold and foreign currencies (30%). This was an essential step to liberalize Syria from the payment balance constraint.

Specialists forwarded two scenarios to reform the central bank:

1. Independence of monetary policy (Independent Central Bank).

2. Rationing credits to government.

Author analyses the first scenario and lists all counter-arguments mentioned in the BMS, the which emphasizes the decisive role of the government. Government representatives in CMC can not be neutral and have to reflect the point of view of the ministry they represent.

Monetary policy must be seen as a part of the global economic public policy. Albeit his dependence to the government, the central bank succeeded, during the period from 1963 through 1970, in stabilizing the syrian pound.

The writer thinks that the government must have the final decision in monetary policy. And he is not in favor to fix a limit to credits through a special law. The economic circumstances dictate always the credit policy. He reminds that the limit fixed to 60 million SP has been modified several times.

Specialized banks

ATRASH considers public banks competent. He disagrees that these banks are inapt to give sufficient credits to private sector. During the period from 1990 through 1999, banks credits to private sector have increased from 13.2 billion SP to 61.3 billion SP (40% a year). Private sector deposits have accrued from 22.6 billion SP to 89.9 billion SP (33% a year).

He does not agree the establishment of private banks in Syria because:

× Their competence is not better than the public banks. Bankruptcies in arabian and foreign private banks demonstrates their vulnerability. Until now, neither of syrian public banks went bankrupt.

× Public banks furnish a surplus sustaining the public budget and helping in economic development. Establishing private banks will deprive government from this surplus.

× Establishing private banks will weaken public banks and will deprive it from competent staff because of the mediocre wages in public sector. Increasing wages will improve performance in public banks.

Knowing that the decision to establish private banks has been taken, author suggests submitting their activities to the central bank. Concerning arabian and foreign bank, he proposes to verify the mother bank history whether it misbehaved in the past. He appeals to prevent banks from speculation in the financial markets.

Financial market

Financial market may help in collecting savings through shares and bonds. But, the author foresees that the financial market in Syria will be limited and inefficient. Some measurements must be taken to prevent misleading behaviors:

× Government has to prohibit buying shares via banking system. If banks are involved in these transactions, money supply risks to be inflated. Furthermore, When banks are involved in these operations they could be accused to have a biased behavior on behalf of a specific firm.

× Foreigners must not be allowed to intervene in national financial market. Their intervention depends on their capacity to withdraw funds at any time and to get equivalent in foreign currencies. In Syria, flaws of foreign currencies are officially allowed to finance past debts reimbursements or liquidation of past real investments.

Foreign currencies policy

ATRASH pleads in favor of concentrating foreign currencies in the central bank. Commercial bank may keep foreign currencies to:

1. Help in syrian pound stabilization

2. Make foreign currencies available to government in order to achieve its goals according to the priorities.

3. Financing the private sectors needs in imports. This will help to eradicate the fictive export phenomenon and the high exchange rates of export dollar compared to the neighbor markets exchange rates.

4. Accelerate the economic activity, because when exporters and firms keep foreign currencies, they contribute in slowing down the economic activity.

The author presents some suggestions to deal with this problem:

× It is necessary to keep a realistic exchange rate for the syrian pound. This exchange rate has to be changed depending to the market exchange rate.

× Foreign currencies must be bought from exporters and other firms according to the market exchange rate. And Banks must finance import operations and debts reimbursements in a realistic exchange rate.