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In most of the years before 1970, remittances from Syrian workers in Lebanon and other places, tourism receipts, some grants, and pipeline transit fees usually covered a large part of the trade imbalance. Borrowing from foreign sources, primarily for large development projects, balanced the country's international payments. In exceptional years, part of the country's modest international financial reserves were drawn down to meet emergencies and subsequently built up again.

In the 1970s, the same pattern continued, but after 1976 Syria faced considerable balance of payments problems, including large trade deficits. The trade deficit was US$130 million in 1970, US$1 billion in 1976, US$1.8 billion in 1980, and US$1.9 billion in 1984 (see table 12, Balance of Payments, Appendix). By early 1977, foreign-exchange reserves, down to about US$220 million, were sufficient to pay for about one month's worth of imports. Only grant aid, largely from Arab oil-producing states, totaling US$1.1 billion in 1977, averted an economic crisis. Although grant aid cushioned the economy, foreign-exchange reserves continued to dwindle. At the end of 1983, foreign- exchange reserves totaled $US43 million, down from $US185 million in 1982. Estimates in 1984 placed Syria's foreign-exchange reserves at about US$100 million.

Decreased oil exports, increased oil imports, recession in the Gulf states, declining worker remittances, and lower world prices for phosphate and cotton in the 1980s contributed to the state's shrinking foreign-exchange reserves. Decreased agricultural production and Western aid transfers also adversely affected Syria's reserves. Total international reserves were valued at US$257 million in 1983, enough to cover about half a month's imports.

In addition, balance of payments problems intensified because of increased defense spending and development expenditures. The June 1967 War, the October 1973 War, Syria's participation in the Arab Deterrent Force and subsequent involvement in Lebanon following the 1982 Israeli invasion, and President Assad's commitment to achievement of strategic parity with Israel by expanding force levels and acquiring more sophisticated weapons systems, rapidly accelerated national security costs. In the budgets of the mid-1980s, defense spending represented more than 50 percent of current spending and 30 percent of total expenditure. Development expenditures also rose quickly after 1973, increasing from LS5.9 billion in 1975 and LS14.3 billion in 1981 to LS19.4 billion in 1985.

Syria had extremely limited opportunities to earn foreign exchange other than by exporting goods. Pipeline transit fees for crude oil, a primary service activity in the 1970s, largely ceased after 1976. Although the government built new hotels and holiday villages with foreign companies, tourism did not generate sufficient foreign exchange in the mid-1980s to affect the foreign liquidity crisis. For example, tourism earned only LS451 million in 1984. Consequently, Syria turned to outside sources to offset the trade deficit, relying on foreign grant aid, worker remittances, and foreign lending from banks and development funds to ease balance of payments pressures.

Syria received little foreign grant aid until after the June 1967 War when Kuwait, Libya, and Saudi Arabia agreed to provide financial assistance to the confrontation states--Syria, Egypt, and Jordan. Except for 1967, the published amounts given Syria remained small until 1971, when they reached US$21 million. Grant aid for balance of payments amounted to US$364 million in 1973 and US$654 million in 1975. To purchase military equipment, Syria reportedly received large additional transfers not included in the statistics. Arab grant aid decreased in 1976 because of uncertainty over Syria's intentions in Lebanon, but it jumped sharply to US$1.1 billion in 1977.

At the 1978 Baghdad summit conference, the Arab oil-producing states pledged US$1.8 billion a year in financial support to Syria. However, most observers agreed that actual cash transfers amounted to far less than official allocation levels. Syria's political relations with Middle East neighbors and the mid-1980s economic downturn in the Gulf tended to determine the flow of Arab aid. Organization for Economic Cooperation and Development (OECD) figures valued OPEC aid to Syria at US$1.4 billion in 1981, dropping to US$799.7 million in 1983. The highest estimates for 1983 placed Arab aid to Syria at US$1.2 billion, but most observers considered US$1 billion a more accurate figure. Only Saudi Arabia and Kuwait, the wealthiest Arab oil-producing states, provided regular aid installments as stipulated under the Baghdad summit agreement. In 1983 Saudi Arabia contributed roughly US$800 million and Kuwait provided US$200 million in aid. By 1985 Syria had suffered a marked decrease in financial support from the Arab states, reportedly receiving only US$700 million in Baghdad summit money that year. To protest Syrian support of Iran in the Iran-Iraq War and Syrian policies in Lebanon, the Kuwaiti parliament voted to suspend its annual contribution, but the Amir moved quickly to restore aid levels. In 1986 Saudi Arabia reportedly gave Syria US$700 million, including a US$176 million cash grant in July, as part of its Baghdad summit commitments. Official grant aid cited in Syria's balance of payments peaked in 1981 at US$1.8 billion and declined to US$1.2 billion by 1984.

Apart from "official" Baghdad summit aid, Syria received additional support from Arab states. Unconfirmed reports revealed that Libya paid about US$1 billion to the Soviet Union in 1979-80 to cover Syria's mounting military debt. In the aftermath of the Israeli invasion of Lebanon in 1982, reports also suggested a major transfer of funds, perhaps up to US$2 billion, from Saudi Arabia to Syria for immediate arms resupply. Since 1982 Iran has channeled aid to Syria, (including oil) valued at its peak in the 1983-84 period at US$1 billion.

The government also relied partially on workers' remittances to alleviate balance of payments pressures. Officially recorded remittances peaked at US$901 million in 1979. However, by 1983 the propensity of workers to invest remittances outside Syria because of worsening economic conditions decreased their impact on the balance of payments. As the economic downturn in the Gulf became more pronounced in 1984 and 1985, remittances further dropped--from US$327 in 1984 to US$300 in 1985. Economists expected the downward trend to continue as long as world oil prices remained at their low 1986 levels.

In the 1970s, Syria increasingly turned to private and government financial institutions to finance part of its economic development. Before 1973, drawing rights on available credits were only slightly higher than repayments of earlier loans. Since 1972 government drawings on long-term loans have increased, reaching US$340 million in 1976. This rapid rise of available credits (excluding military) was even more striking, amounting to US$340 million in 1970, US$650 million in 1973, and US$2.8 billion at the beginning of 1977. Into the 1980s, other governments continued to provide the bulk of the credits, supplemented by loans from World Bank organizations and international development funds. Syria's stature as a borrower in international commercial credit circles remained weak in the 1980s.

The increase of the external public debt (over one year and excluding military loans) also occurred rapidly but was slower than available credits because of Syria's deficiencies in implementing projects. The external public debt amounted to US$232 million in 1970, US$411 million in 1973, US$1.2 billion in 1977, and US$2.5 billion at the end of 1984. Debt service costs barely exceeded US$100 million in 1975, but tripled by 1984, representing 13 percent of the exports of goods and services. Syrian officials appeared relatively prudent in the use of foreign loans, cutting back plans rather than going deeply in debt. The debt service ratio stood at 11.2 percent in 1983, a relatively low rate as a result of Syria's reliance on grant aid and workers' remittances to finance the trade deficit.

National and international economic development funds, the World Bank, the European Investment Bank, and agencies affiliated with the UN conducted and financed aid programs. World Bank loan commitments increased substantially in the 1970s, exceeding US$250 million in 1978. World Bank missions to Syria occurred more frequently through the mid-1980s and project loans continued to rise. The World Bank joined other international lenders, including the Arab Fund for Economic and Social Development, the Kuwait Fund for Arab Economic Development, the Saudi Fund for Development,and other Arab development funds, to finance projects in electric power, rural electrification, highway construction, telecommunications, irrigation, education, livestock, water resources, and other areas.

Since the late 1950s, East European states have provided substantial economic development loans to Syria. In the 1960s, Soviet technical and financial assistance was instrumental in constructing the Euphrates Dam, including the hydroelectric power station. The Soviet Union provided a $US185 million loan at concessional rates to finance the dam, Syria's largest development project of the decade. After completion, the Soviets and several East European countries helped construct parts of the dam's irrigation and drainage facilities.

In the late 1970s and 1980s, the Soviet Union, Czechoslovakia, and Romania continued to be particularly active in developing Syria's infrastructure. For example, Czechoslovakia played a major role in developing Syria's crude oil and refinery facilities. In 1986 Technoexport completed work on a 92-kilometer spur linking Syria's new oil field at Dayr az Zawr with the old Iraqi-Syrian pipeline. Furthermore, Syrian refinery workers underwent training in Romania. The Soviet Union continued to lend assistance for power plant projects, including the US$97-million Tishrin plant, a joint venture undertaken by the Soviet Union's Technopromexport and Syria's Milihouse.

Throughout the 1980s, economic and technical cooperation agreements with the Soviet Union and East European states generated new aid commitments, but in 1987 the exact amounts remained unknown. Total Syrian indebtedness to East European states (including military assistance) was estimated at about US$12 to US$13 billion in the mid-1980s. In 1984 there were over 5,000 Soviet and East European technicians working in Syria, in addition to over 2,000 military advisers.

Beginning in the 1970s, Syria also received considerable amounts of aid from Western Europe and the United States. Common Market members agreed to provide nearly US$70 million to finance Syrian development projects. Individual states, including West Germany and France, also provided bilateral aid, but in 1979-80, as relations deteriorated, West Germany stopped all funding for Syrian development projects. In 1985 West Germany decided to restore project funding but withdrew all development assistance to protest Syria's alleged role in the 1986 bombing of the German-Arab Friendship Society. In 1986 the West European countries and Britain endorsed a series of economic sanctions to demonstrate their disapproval of Syria's alleged role in terrorist operations (see Sponsorship of Terrorism, ch.5.).

Between 1945 and the end of 1976, the United States channeled US$103 million in economic aid to Syria. In the years shortly after independence, the United States provided nearly half of this aid, primarily in the form of grants. After Syria and the United States resumed diplomatic relations in 1974, United States project aid to Syria increased dramatically. In 1981, however, the United States Congress froze about 60 percent of a US$227.8- million allocation of development aid, bringing United States Agency for International Development (AID) financed water, electricity, highway, and other infrastructure projects to a halt. All United States government economic assistance to Syria was canceled in 1983, and in 1986, the United States adopted sanctions similar to those of its European allies against Syria.

Data as of April 1987

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