US embassy cable - 05DAMASCUS6367

C O N F I D E N T I A L DAMASCUS 006367 
 
SIPDIS 
 
SIPDIS 
 
NEA/ELA 
NSC FOR ABRAMS/DORAN/SINGH 
TREASURY FOR GLASER/LEBENSON 
EB/ESC/TFS FOR SALOOM 
 
E.O. 12958: DECL: 12/01/2015 
TAGS: ECON, EFIN, SY 
SUBJECT: HIGHLIGHTING FRAGILITY OF REFORM, REGIME LOYALIST 
ANNOUNCES NO REDUCTION IN SUBSIDIES 
 
REF: A. DMS 5045 
 
     B. DMS 5909 
     C. DMS 6131 
 
Classified By: CDA Stephen Seche, reasons 1.5 b/d 
 
1. (C) Summary: A regime insider recently announced that the 
SARG will not reduce the subsidy on diesel or other basic 
commodities, publicly contradicting Deputy Prime Minister for 
Economic Affairs Abdullah Dardari and effectively 
marginalizing the work of a committee of reformers tasked 
with developing a long-term strategy of subsidy reduction. 
Taken with other recent public rebukes, the latest comments 
indicate the current ascendancy of anti-reform elements in 
the SARG, who argue that the government cannot afford reform 
given the current political environment.  End summary. 
 
2. (SBU) During a session of Parliament last week, Mahmoud al 
Abrash, speaker of Parliament and mouthpiece for the regime, 
publicly marginalized the work of a special committee tasked 
with developing a plan to gradually reduce subsidies on 
diesel and other basic commodities.  Abrash stated that 
"rumors" of a possible reduction in subsidies were untrue, 
adding that the Regional Command, which includes the 
President and SARG officials with policy-making authority, 
had decided not to reduce subsidies on any commodities.  His 
comments come as winter approaches and as average Syrians- 
who spend as much as 1/4 of their monthly income on diesel to 
heat their homes- are increasingly nervous about their 
declining purchasing power in the face of 10-15% inflation, 
according to unofficial figures, and the 10% decline in the 
value of the Syrian Pound (SYP). 
 
3. (C) Abdul Kader Husrieh, an economist with Ernst & Young 
who is one of the intellectual authors of the committee's 
recommendations, derided the announcement as a political 
decision without economic merit.  He added that Abrash's 
comments highlight the split in the SARG between those who 
are trying to build a long-term agenda for reform and those 
who believe the SARG should act in crisis mode and forsake 
reforms as long as the external pressure is so severe.  Other 
high-profile, public contradictions of the reformers indicate 
that the latter group is ascendant, and that reformers have 
less influence (ref B).  Amin el Sharkawi, the Assistant UN 
Resident Representative in Syria who is providing technical 
assistance to the SARG on political and economic reform, 
stated that while Dardari is primarily alone in pushing for 
reform, he is facing a "tidal wave" of anti-reform sentiment. 
 
 
4. (SBU) The special committee, made up of reformers in and 
out of government, had recommended that the SARG reduce the 
subsidy on diesel by 5 SYP per year until the price matches 
the world price in 2010.  In addition, the committee 
recommended that the SARG offset rising prices with up to a 
40% increase in public sector wages and an annual cash 
payment to each Syrian citizen.  Reformers argued that the 
plan was a realistic attempt to tackle the fiscally 
unsustainable subsidy program, in which the SARG spends 
approximately 220 billion SYP (3.8 billion USD) per year- 
almost half of its projected income in 2006- to keep the 
consumer cost on basic, non-agricultural commodities 
artificially low.  The subsidy for diesel alone, which 
Syrians use to heat their homes and transport goods to 
market, costs 100 billion SYP (1.9 billion) per year 
according to unofficial figures, while fueling a smuggling 
trade that sends an estimated 20% of Syria,s subsidized 
diesel into neighboring countries (reftel). 
 
5. (C) Comment: Abrash,s statement on subsidies comes in the 
context of other regressive and politically motivated SARG 
actions on the economy, which remind reformers as well as 
average Syrians that the Baath Party and security forces 
remain in control of the country's economic future (ref C). 
However, the high cost of subsidies is a looming problem with 
which the SARG must contend as it faces the loss of oil 
revenue in the mid-term.  As Husrieh plainly stated, the 
reduction of subsidies is a medicine that the country has to 
take, and the longer it waits the more bitter it will taste. 
SECHE