Syria plans to issue treasury bills this year for the first time as the government speeds financial reform despite US efforts to isolate it from world markets, the central bank governor said recently.
Adib Mayaleh said the monetary authorities will also allow majority foreign ownership of local private sector banks, continuing a policy of slowly opening the state-controlled economy begun by President Bashar Al-Assad after his father's death in 2000.
Private sector banks have a minority share of the market but are growing rapidly. Deposits now amount to some $3 billion.
"We're in a serious discussion with the finance ministry; we could see a six-month or one-year Syrian pound treasury bill by the end of the year," Mayaleh told Reuters, adding that the bills were to finance public debt and would be issued to domestic investors.
"There is (negative) external pressure," the governor said. "But we have been working on upgrading the monetary environment; monetary policy has already become more transparent," he said.
Although the government, led by the Ba'ath Party since 1963, runs a huge system of subsidies that cuts the cost of petrol, bread and other basic items, budget deficits have been modest and mostly financed by borrowing from the central bank.
Mayaleh did not disclose how much the government owed the central bank, but said the bank wanted to reduce its government debt stock by offering it on the market.
The budget deficit is expected to rise to an estimated 2.5 percent of gross domestic product this year from 2.3 percent in 2005.
Oil production has fallen and the economy has been hit by political uncertainty after last year's assassination in Beirut of former Lebanese Prime Minister Rafik al-Hariri.
The government expects crude oil production to fall to 397,000 barrels per day in 2006 compared with 414,000 bpd last year.
A United Nations probe implicated senior Syrian and Lebanese officials in the Hariri killing. Syria denies involvement.
The Hariri assassination worsened relations between Damascus and Washington, which imposed sanctions on Syria in 2004 for allegedly supporting terrorism in the Middle East.
The US government recently forbade US banks from dealing with the state-owned Commercial Bank of Syria, which dominates the local market.
Private sector banks were allowed to operate in Syria two years ago for the first time since the Ba'ath Party came to power four decades ago and nationalised the economy.
Mayaleh said the foreign ownership ceiling on private banks will rise from 49 percent to 60-70 percent in months. Minimum capital requirements will more than double from $30 million.
"Expanding foreign ownership will encourage more international banks, whose interest in Syria is already huge, to come in," Mayaleh said.
The main regional players, such as Jordan's Arab Bank, have already set up subsidiaries in Syria. Islamic banks, partly owned by Saudi and Kuwaiti investors, plan to open this year.
Mayaleh said the government, which still dominates the economy despite moves towards liberalisation, was considering buying stakes in private sector banks planning to open in Syria.
Local businessmen worry this will allow the government to continue to dictate banking decisions and exert pressure but Mayaleh said Syria had taken steps to bolster the independence of private sector banks and the integrity of the financial system.
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