The Damascus business community is in a state of feverish expectation. Not for anything as dramatic as a Middle East peace deal: they are eagerly awaiting something more mundane. The government is gearing itself up for its first significant financial reform since the passage of Investment Law 10 in 1991. The new reform will see the abolition of Decree 24, a pernicious piece of legislation issued in 1986 to clamp down on black market currency dealing. The decree includes a provision for long custodial sentences for the possession of hard currency.

Although hardly ever enforced, this decree has been a psychological impediment for Syrian business, and its abolition has long topped the demands of business groups. Now, the official daily Tishreen has added its voice to the clamour, a clear indication that the government is at last getting round to taking the decree off the statute books. It is hoped the new measure will also include the establishment of a free foreign exchange system.

The government's failure to build on the small efforts at economic reform in the early 1990s has been a source of frustration for business. But it has not prevented the economy from enjoying a period of healthy growth, averaging 6 per cent a year in real terms during the first half of the 1990s. It has also), miraculously, not produced foreign exchange shortages. The Syrian pound has been traded at a stable rate of about £Syr 50 to the dollar in unofficial markets over the border in Lebanon and Jordan, and the rate of £Syr 42 to the dollar has been available for the past four years at branches of the Commercial Bank of Syria.

The prime areas of growth in the economy have been agriculture, light industry, tourism and imports. Syria produced just over 4 million tonnes of wheat in 1995, and 610,000 tonnes of cotton - both recoi'd figures. Much of the investment that has been stimulated by the passage of law 10 has gone into agribusiness and textiles, The investment law has also had the effect of sucking in imports, which exceeded $5,000 million for the first time in 1995.

Despite the rapid increase in imports, Syria's current account has not recorded unduly high deficits. Exports have also risen, based on the solid foundation of some 400,000 barrels a day of oil; tourism is bringing in steadily increasing income; and expatriate Syrians provide the remaining funds necessary to meet local business' foreign exchange needs. Sufficient aid has been coming from Arab sources to pay for government projects (see page xx).

However, this rosy picture is strictly relative. Any increase in living standards recorded over the past five years has come after a definite fall in living standards during the 1980s. Local and foreign business people agree that Syria needs to take a much more radical approach to economic policy if the recent growth rates are to stand any chance of being sustained, At the very least, Syria needs a shake-up of its government, critics say. 'The economy minister, who is supposed to be the great friend of business, is basically a socialist,' complains one prominent local investor. 'How can we expect him to push through free market reforms when he doesn't even believe in them?' For months, rumours have been circulating in Damascus about a cabinet reshuffle, with the appointment as prime minister of a heavyweight political figure, Chief-of-staff Hikmat al-Shihabi's name has been put forward as a leading candidate, on the assumption that he will be given the task of signing a peace agreement with Israel.

The advantage of having a substantial figure in the premiership, from the point of view of business, is that he might have the authority to take a more forthright approach to economic policy.

Pressure for change is coming from a new generation of business leaders, many of them the offspring of senior figures in the regime, They are more ambitious than the first generation of private businessmen to rise up under Asad. The two big names of the 1970s -- Osman al-Aidi and Saeb Nahas - - are not as dominant as they once were, Aidi has had to seek the protection of the French courts against his creditors in France, This is strictly related to his French hotel business, and has no direct impact on his extensive Syrian tourism interests. However, it has raised doubts about his future investment prospects.

Nahas is still a substantial figure, thanks to his dominance of the tourism transport business, but has faced long delays in his efforts to develop a coastal resort at Amrit, near Tartous, and has still to prove the worth of his investments in industrial projects in the early 1990s.

What all investors face in Syria is the near impossibility of securing loan finance. The Commercial Bank of Syria, a state monopoly, effectively restricts itself to providing trade facilities, which must have 100 per cent cash cover. This has resulted in absurdities such as a new private cement venture that is seeking to raise a total $197 million in equity to cover the entire cost of the project. The response to the offering of shares has been weak, partly because of the scale of the funds involved, and partly because the investors have not been able to secure a commitment from the government that the plant will be able to sell the cement directly to consumers. The prospect of the venture's sales being at the mercy of the state cement marketing board has not been a pulling point with potential investors.

'If there is no debt, there can't be any bankruptcy,' is a commonly heard justification for this state of affairs. The thinking behind this view extends to Syria's international relations. 'They could perfectly well settle their arrears with us,' says one European diplomat, 'but they simply don't want to.' Arrears to EU member states are about $750 million. Japan is also owed over $100 million, and Syria has $400 million of arrears to the World Bank. The many billions of dollars owed to the former Soviet Union are somewhat academic.

The only penalty Syria is suffering for its debt delinquency is the withholding by the EU of some $285 million in loans, and the absence of any medium-term export credit cover. There is no IMP or World Bank pressure, and consequently reform is extremely slow. That is why any new measure is welcome, even something as modest as the abolition of a decree prohibiting the possession of foreign exchange.