Monetary and fiscal policies

2.3.5.1. Exchange rate (ER) and currency policies

Syria’s ER policy is considered as one of the most important macroeconomic policies affecting the development of the agricultural sector. It compensates for the policy effects of other economic sectors. Syria had implemented a multiple ER systems. In another word, ER applied for imports of agricultural inputs were different from those for import and export of agricultural commodities. Furthermore, holding or exchanging foreign currency has been tightly regulated for decades and it was considered a crime punishable with prison (Maletta 2003; Wehrheim 2003). From the early 1990’s, a substantial progress reform of the foreign ER has been gradually taking place by the unification of various ER and a devaluation of all exchange rates to be closer to the prevailing market ER. This reform progress was terminated in 2002 by unified ER system instead of multiple ones. In addition, Syrians are allowed to retain foreign currency or to exchange with Commercial Bank of Syria at market rates. This permission is confined only to personal purposes, mostly tourism and remittance, at a rate that is closely to the prevailing rate at the black market (Sarris 2001; Maletta 2003; Wehrheim 2003).

The unification of the ER which is relevant for agricultural production started in 1992 since, the ER at which pesticides had to be imported was increased from SYP 11.25 to USD 40. In 1994, the same happened for that of fertilizers from SYP 11.25 to USD 43 (Table 2.7).

An adjustment of similar magnitude followed with respect to the ER at which was imported.

Finally, in 2000 all agricultural related ER were imported from the old value of SYP11.25 to approximately USD 46 (Sarris 2003). In the progress of justification the multiple ER closer to the real one which reflects the actual ER for the SYP, in 2003, ER was abridged in two prices.

The first one is specified with the transactions of the state and public sector, which reached SYP 50/one USD. The second one is related to persons and private sector transactions determined by international ER, which was ranked between SYP 53.33 and 53.75/one USD at that time. In 2007, the ER decreased to be less than SYP 50/1 USD (NAPC 2007).

Table 2.7: Exchange rate developments of selected items by SYP per USD, 1990-2000

Exchange rate 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Official 11.25 11.25 11.25 11.25 11.25 11.25 11.25 11.25 11.25 11.25 46.50 Fertilizers 11.25 11.25 11.25 11.25 43.00 43.00 43.00 45.00 46.50 46.50 46.60 Pesticides 11.25 11.25 40.00 40.00 43.00 43.00 43.00 45.50 46.50 46.50 46.70 Agro- Exports 11.25 11.25 11.25 11.25 11.25 11.25 11.25 11.25 11.25 11.25 46.80 Agro-Imports 11.25 11.25 11.25 11.25 11.25 11.25 11.25 11.25 11.25 11.25 46.90 Black Market 46.45 45.84 50.48 49.67 51.20 50.00 51.00 51.00 51.00 51.00 51.00 Source: Sarris 2003

Foreign currency revenues from agricultural trade have been restricted in the 1990s.

Syrian exporters were obliged to abdicate 25% of foreign currency earnings from exports, and substitute it by SYP at the locally prevailing ER in 1990’s (SYP11.25/ one USD), which was far below the respective international ER. On the import side, the importer had to prove that the owned foreign currency needed for imports was earned from exports. In addition, customs duty applied for importing some of food staples such as wheat, sugar, rice, etc. calculated at locally prevailing ER in 1990’s (SYP11.25/ one USD). While, the foreign currency required for imports can be obtained from Commercial Bank at international ER in that period (SYP 50/one USD) (Sarris 2003). Government Decree No. 1184 dated of 19.09.2002 has been unified the ER of customs duty applied for agricultural imports with the international one.

Additionally, commercial bank share of foreign currency revenues was reduced to only 10%

of total exports revenue which was substituted by SYP at national ER. This legislation excepts public and private exporters of vegetables, fruits and table eggs which are allowed to keep all of their export proceeds in foreign currency (NAPC 2010a).

2.3.5.2. Agricultural credit policy

Agricultural Cooperative Bank (ACB) is the only official organisation that financed agricultural activities for public, cooperative, and private agents in Syria. It provides short, medium and long-term loans dependent on the purpose of use. Short-term loans are supplied in-kind, seeds and fertilizers, and in-cash to finance farm operations. The largest share of macro elements fertilizers are sold by ACB stores either directly to farmers or through in-kind seasonal loans according to the permitted quantities stipulated in crop licenses (Parthasarathy 2003b). Medium-term loans are specialised to finance land reclamation, irrigation equipment,

greenhouses, animal purchase, poultry farm equipment, fence and terrace construction and banana plantations. Long-term loans are intended for land improvement, storage facilities and cold storage units, forestation projects and fruit trees. Short-term loans do not exceed 300 days, and they are due by the first of August for winter crops and the first of December for summer ones whereas medium and long term loans are given for maximum 5 and 10 years, respectively (NAPC 2007).

Interest rate of ACB loans are governmentally fixed neither market-driven nor updated macro-economic situations (Parthasarathy 2003b). It varies for each loan according to the beneficiaries (Table 2.8). In order to mitigate drought consequences, ACB fully or partially reschedules the repayments of short-term loans depending on the extent of damage. If damage is more than 30% of the debtors’ average annual yield, 50% of the sum due is rescheduled whereas the total sum is rescheduled when the damage is more than 60%. The deferment applies to the principal, but interest must continue to be paid. The repayment in equal instalments is allowed over three, and sometimes for five years as it took place in 2002, 2007-2009 period and 2012. When repayment capacity is affected by drought, there is no possibility to loans rescheduling for medium and long-term loans (Parthasarathy 2003b; NAPC 2010b;

MAAR 2013).

Table 2.8: Interest rate of the ACB loans (%) in 2012

Loan type Public sector Cooperatives Individuals and

joint sector

Short-term 3.50 9.00 10.00

Medium-term 3.50 10.00 11.00

Long-term 3.50 11.00 12.00

Delay interest 0.25 14.00 14.00

Source: SANA 2012

In some cases, farmers are not able to obtain agricultural loans from ACB because of their overdue installments to the ACB, or in order to finance illegal activates such as establishing well without licence or cultivating cotton over licensed area. In such cases, traders, exporters’ agents or owners of cold storage units can be considered as unofficial financier for agricultural producers by a simple contract which includes the price and the way of payment such as direct advances ahead of the season or by an agreement on a lump sum to be paid to the farmer for the entire output (NAPC 2002).

2.3.5.3. Agricultural tax policy

As in many other countries, the agricultural sector benefits from various preferential tax treatments with the aim of subsidizing agricultural production and supplying food staples

at reasonable prices. Most notably, tax exemptions have been introduced for farm income, all production and consumption cooperatives, agricultural investments, agricultural labour housing, warehouses of agricultural products and barns. Symbolic tax is imposed on farm animals, which are taxed annually per head at the following rates, sheep and goat SYP 2.25, camels SYP 4, cattle SYP 7 and pigs SYP 11 (Wehrheim 2003; NAPC 2007). Tax applied on agro-industry products ranged between 10 and 12%. Then it was exempted in 1999 for textile industry, and for all agro-industry products by 2001 (Sarris 2003).

On the export side, agricultural exports were governed by tax ranges between 9.5 and 12% of the production value. However, since early 1990’s gradual exemptions from these export taxes has occurred. These exemptions started for exports of dry and frozen vegetables of superior quality, followed by all fruits and vegetable, olive oil in 1996, cotton in 2000 and finally in 2001 Government Decree No.15 exempted all agricultural commodities from the export tax. Furthermore, the Syrian government has abolished the income taxes of all agricultural export revenues (1% of all earnings from exports plus a tax on foreign currency earnings of one-tenth SYP/USD) which were valid until 2001 (Wehrheim 2003; NAPC 2010).

The custom tariff schedule has been recently modified to reduce the import tariff of agricultural inputs to the minimum level. Under the policy of domestic production protection, import tariff of products similar to the locally produced ones that cover the local demand was raised to the maximum level (NAPC 2010a). The same was done for luxury products such as Caviar 100% (Syrian customs 2013).