The Draft Economic Reform Program (ERP) is characterized by financial reforms like freeing interest rates, free transfer of funds, unification of exchange rates, full convertibility of the Syrian Pound, independence of Central Bank, revision of income tax, revision of trade laws, modification of custom tariffs, setting up of a Stock Exchange and reform of the judicial system.

In 2002, Reforms in the field of Monetary Policy and Banking : A Credit & Monetary Council (CMC) was set up in the year 2002 as the nodal body to regulate the monetary policy in the country. The CMC took its first significant decision by reducing interest rates on deposits and loans by 1% from 8 and 12% respectively in 2003. The interest rates in Syria had remained static for the last 22 years. A new Money laundering law was approved in 2003.

It sets up an Agency for Combating Money Laundering, prescribes offences and punishments. By far the most significant development has been the opening of Private Banks in Syria. The state held banks provided loans to the private sector to the extent of only 21% of their credit, while the private sector contributes 87% of the GDP.

In 2003, Opening of international private banksAs per law the minimum capital of these private banks would be US$ 30 million out of which foreign parties would own a maximum of 49% and a minimum of 51% would be held by Syrian investors. In January 2004, two institutions-the Bank of Syria and Overseas (BSO) and the Banque Bemo Saudi Fransi (BSF) opened their Damascus branches.

In December 2003, Fiscal Policy and Tax reforms : A new Income Tax Law Along with it a bill was enacted for combating Tax evasion. Among the most significant measures introduced by the law is the bringing down of maximum rate of corporate taxes to 35% from a high of 63%. For individuals annual income of 60000 SYP or below is exempt. The maximum rate of personal income tax has been pegged at 20%.The lower corporate tax rates, combined with the new law combating tax evasion, are expected to bring down the loss due to tax evasion.The new Tax Law brings in transparency and a minimization of the uncertainty and ambiguity that characterized the Syrian tax system.

In 2002-2003, Trade Liberalization: A series of steps taken for loosening foreign exchange controls have been taken in the last few years by the Syrian government. In 2002, unification of the Foreign exchange rate that was applied to most Foreign exchange transactions was done at the neighbour country rate of SYP 46.5/1$. In 2003, the Central Bank stated offering direct money transfer through Western Union Money Transfer. In July 2003 a highly restrictive 17-year-old Foreign Exchange law was abolished. The law was considered as one of the major obstacles to foreign investment in the country. Soon thereafter the Export-Import foreign exchange link was ended. This makes imports cheaper and also considerably reduces the black market in foreign exchange.

Law no.10 of 1991, governing investments : In 2003, amendments have been proposed to make it more investor friendly. A new decree regulates investment in the country's free trade zones (FTZ). The new law allows investments in all types of services, including banking, tourism (hotels and restaurants), e-commerce, health (hospitals and other medical services), duty free shops, communication (media cities), economic consultancy services, transit services, etc.

1

Secondly, the law authorizes the set-up of private free trade zones (FTZ) and private Free Trade Points.

In 2004, Abolishment of Dreaded Economic Security Courts (ESC), opening of ATM services and agreement with credit cardsESCs functioned under the Emergency Laws and looked into economic crimes. Preventive detention for economic crimes was also abolished. ATM services have begun in Syria. Credit cards made their appearance in the last year. An agreement was signed with Diners Club also. Till now, only the Commercial Bank of Syria could deal in foreign exchange. Now, the private banks can sell currency in the market on the same terms and conditions as the Commercial Bank of Syria.

Other changes in the Justice SystemApart from investor friendly reforms, the Syrian Government is trying to usher in change in a variety of other spheres: A meeting of the Judiciary Higher council (JHC) was held in May 2003. This was a first meeting in decades. It is the highest judicial authority in the country and is headed by the President. The meeting stressed the importance of judicial authority in the "development" of the country, in particular its specific role, though application of the law, in encouraging investments.

2

3

Syria has the strategic potential to become a regional transport hub.Its ports could act as Mediterranean gateways for overland routes to Iraq, Iran and Central Asia. Syria is also placed on the north-south route connecting Turkey and Europe to the Gulf.The ports are being modernised, given the importance of seaborne commerce to the country’s trade.The government’s policy aims at promoting the private sector and developing stronger public-private partnerships.The Build-Operate-Transfer system is increasingly used for airports and ports as well as for several ambitious infrastructure projects involving railways, highways and airports.The Ministry of Transport has prepared a draft strategy running until 2020, covering air, maritime, rail, road and urban transport and gives a prominent place to the BOT arrangements for new investments.

The EU has been supporting private-sector development in Syria for over ten years with the objective of increasing SME competitiveness and the efficiency of business support institutions. This support is an essential element of the transition towards a market economy and the integration of Syra into the Euro-Mediterranean Free Trade Area.

4

The EU has funded the establishment of “Syrian-European Business Centre (SEBC) in Damascus and Aleppo, which has provided services to SMEs for 10 years. The EC will ensure its sustainabily through transformation into fully-fledged SME agency under the “SME Support Programme”The Banking Sector Support Programme backs the ongoing reform of the financial system and aims at facilitating access to finance for the private sector.The Programme for Strengthening Quality Management, Capabilities and Infrastructure” will promote quality at the policy, institutional and enterprise levels.Finally, the SME Fund developed by the EIB will finance capital investment projects for Syrian SMEs through local banks.

5

6