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C O N F I D E N T I A L SECTION 01 OF 03 DAMASCUS 002504 
 
SIPDIS 
 
SIPDIS 
 
NEA/ELA 
TREASURY FOR GLASER/SZUBIN/LOEFLER 
NSC FOR ABRAMS/SINGH 
 
E.O. 12958: DECL: 05/30/2016 
TAGS: ECON EFIN EINV SY
SUBJECT: CENTRAL BANK, COMMERCIAL BANK OF SYRIA AND FINANCE 
MINISTRY AT ODDS IN FRACTIOUS BANKING SECTOR 
 
REF: A. DMS 1217 
 
     ¶B. DMS 2164 
     ¶C. DMS 2063 
     ¶D. 05 DMS 5285 
     ¶E. 05 DMS 6131 
     ¶F. 05 DMS 6544 
     ¶G. DMS 2265 
 
Classified By: Charge d'Affaires Stephen Seche, reasons 1.4 b/d 
 
¶1. (C) Summary:  Contacts report a conflict for authority 
over the banking sector among the leaders of the Central 
Bank, Commercial Bank of Syria and the Ministry of Finance. 
The Central Bank is seeking to claim control of the banking 
sector and at the same time establish its own tools of 
monetary policy, but is facing resistance from the Commercial 
Bank of Syria, which is struggling to retain its central 
position in the country's banking industry in the face of US 
financial sanctions.  In addition, the Ministry of Finance is 
seeking to limit the Central Bank's role and prevent any 
erosion in its own primacy over financial affairs.  Contacts 
suggest that the often personal infighting weakens the 
chances for real reform of the sector, and further highlights 
the widespread lack of faith in the Central Bank's ability to 
assume the role of other central banks in the region. End 
summary. 
 
¶2. (C) With the Commercial Bank of Syria (CBS) losing its 
primacy due to US sanctions under Section 311 of the 
USAPATRIOT Act (ref A), some independent Syrian economists 
and private bankers are expressing a new urgency in their 
calls for the SARG to reform and consolidate the banking 
sector.  These contacts state the CBS should be demoted from 
the role it has played since nationalization in 1965 as 
Syria's de-facto central bank, and forced to compete with the 
new private banks for public and private business.   In 
addition, they argue, the Central Bank should cease its 
current primary function of financing SARG deficits under the 
direction of the Ministry of Finance and assume an 
independent, supervisory role over private banks and monetary 
policy.  Contacts state that the reform proposals appear to 
be gaining some traction.  The broad outline for 
consolidation of the banking sector is contained in the 
recently passed 10th Five-Year Plan (ref B), which some 
contacts helped draft.  Further, the SARG has announced its 
intention to issue treasury bills before the end of 2006 that 
would provide the Central Bank with a real tool to conduct 
monetary policy, as well as licensing foreign exchange houses 
to expand Syrians' legal access to hard currency. 
 
¶3. (C) Contacts are concerned, however, that sectoral reforms 
eventually may be blocked by a lack of political will to make 
bold changes to the status quo.  The general managers of the 
private banks state that the sector lacks clear leadership 
and therefore predictability, and that there are too many 
different ministries involved in the sector, each trying to 
assert some degree of oversight.  George Sayegh, General 
Manager of Bank of Syria and Overseas, stated that his 
balance sheet must be countersigned by the Prime Minister and 
the Ministers of Finance and Economy and Trade before they 
can be published.  Contacts further contend that the sector 
is captive to competing political interests among its major 
players, and that Minister of Finance Mohammad Hussein, 
General Director of the CBS Dureid Durgham, and Governor of 
the Central Bank Adeeb Meyaleh are all jockeying for 
authority and the ability to shape the sector's future. 
 
Central Bank Governor Vying for Authority... 
 
¶4. (C) Contacts state that Meyaleh is working actively to 
increase his personal authority and the independence of the 
Central Bank.  He has increased the number of reports that 
private banks must submit to the Central Bank in order to 
cement the chain of command (ref C), and recently reached out 
to the Jordanian Central Bank Governor through the newly 
opened Arab Bank Syria to build his regional credentials. 
Contacts suggest that he is trying to increase his bank's 
authority at the expense of both Hussein and Durgham.  In 
what European Commission (EC) contacts describe as a snub to 
Hussein, Meyaleh recently refused to participate in a 
workshop on public bank reform and capacity-building that was 
sponsored by the Ministry of Finance and the European 
 
DAMASCUS 00002504  002 OF 003 
 
 
Investment Bank (EIB)  because he felt that the Central Bank 
should have played a more prominent role in the workshop's 
planning.  Basil Hamwi, General Manager of Bank Audi, stated 
that Meyaleh considers the CBS to be a rival bank and has 
made no move to provide the CBS with access to the 
international financial system through the Central Bank or 
help facilitate its transactions.  Hamwi added that although 
Meyaleh has said that he personally disagrees with the US 
sanctions against the CBS, he hopes the sanctions will weaken 
it so that the Central Bank can become the dominant bank in 
the country. 
 
¶5. (C) Meyaleh reportedly has the support of President Asad, 
contacts assert, which gives him clout despite the fact that 
he is not a member of the Ba'ath Party and lacks deep ties to 
the regime (ref D).  Contacts state that he appears to be 
riding a wave of influence due to what most interlocutors 
consider the Central Bank's successful intervention in 
support of the Syrian Pound (SYP) (ref E).  Most contacts, 
however, have little faith in Meyaleh's ability to lead the 
Central Bank.  Contacts in the EC, who have instituted a 
number of programs to build the bank's capacity, describe 
Meyaleh as a self-promoter who lacks technical knowledge, 
vision, and management skills.  They assert that the EC 
Mission's leadership is beginning to view Meyaleh as an 
obstacle to banking reform.  Even those among Syrian 
interlocutors who know and like him state that Meyaleh is 
more of a theoritician than a manager.  Contacts who claim 
inside knowledge of the Central Bank's intervention on behalf 
of the SYP state that Meyaleh was fickle in his management of 
the process and displayed a poor understanding of currency 
issues.  Basil el Haffi, a self-proclaimed close friend of 
Sahloul, aka Abu Rafiq, the black-market money changer who 
allegedly managed the Central Bank's intervention, described 
one exchange toward the end of the crisis in which Meyaleh 
demanded Sahloul increase the rate of intervention over 
complaints from those more expert that a precipitous change 
in the currency's value would disrupt trade.  A chastened 
Mayaleh allegedly returned later the same afternoon ordering 
Sahloul to stop the intervention altogether without 
explaining his 180-degree change, Haffi reported.  The 
currency immediately lost value the next day (ref F). 
 
... While Riding a Weak Horse 
 
¶6. (C) Reflecting both Meyaleh's poor leadership and the 
years of neglect playing a secondary role to the CBS and the 
Ministry of Finance, contacts complain that the Central Bank 
lacks the facility to perform the core functions of a central 
bank.  An International Monetary Fund (IMF) senior economist 
stated that the Fund has expressed grave concerns about the 
Central Bank's current lack of skills and capacity, 
specifically noting a perceived lack of political will to 
oversee the private banking sector according to international 
standards.  Abdul Kadr Housrieh, a partner with Ernst & Young 
Syria and an informal advisor to the Deputy Prime Minister 
for Economic Affairs, stated that the Central Bank also lacks 
a working Consumer Price Index (CPI) or the trained staff to 
update it, and therefore has no ability to stabilize prices 
or accurately set interest rates.  In addition, contacts 
state that the bank has no monetary policy per se, instead 
controlling money supply and the exchange rate by 
manipulating the black market. 
 
¶7. (C) Contacts among private bankers further state that the 
Central Bank currently has no mechanism to facilitate 
inter-bank transfers, which historically have been the 
responsibility of the CBS.   Ali Deeb Zataar, General Manager 
of Arab Bank Syria, stated that in an effort to avoid 
interfacing with the CBS due to Section 311 sanctions, Arab 
Bank has attempted to conduct inter-bank transfers for trade 
finance through the Central Bank.  Zataar stated, however, 
that due to the Central Bank's lack of basic infrastructure, 
he faces high transaction costs and risks in completing even 
simple transactions.  In order to transfer money for trade 
finance through the Central Bank, Zataar has to physically 
transport cash to the Central Bank to initiate a transfer, 
and his ability to complete the transaction often requires 
Meyaleh's personal intervention.  Zataar further stated that 
as a result of these difficulties, he has been compelled to 
send cash to other banks in bulk in his staff's unarmored, 
personal automobiles. 
 
DAMASCUS 00002504  003 OF 003 
 
 
 
The CBS fights to Retain Dominance... 
 
¶8. (C) Despite Meyaleh's moves to increase his authority at 
the expense of the CBS, contacts say that Durgham  is 
resisting any change and is working hard to maintain the 
CBS's dominant position.  The CBS remains Syria's largest 
bank, holding most of the country's foreign accounts and the 
majority of its foreign reserves.  In an attempt to emphasize 
the CBS's vitality, Durgham announced record profits last 
year, although most contacts claim that this may be more hype 
and accounting tricks than reality.  He recently has used 
public events to try and lure private sector clients to the 
CBS by emphasizing improvements to its products and services, 
while alternately making it more difficult for existing 
customers to leave the bank by increasing the commission it 
charges for cash withdrawals.   Contacts say that Durgham is 
searching for ways to keep the bank connected to the 
international financial system through third-party 
institutions.  Bassel Hamwi, General Manager of Bank Audi, 
stated that Durgham called him about running CBS business 
through Bank Audi.  Hamwi declined the request, he assured 
us, but added that Durgham is approaching the other private 
banks who may accept the offer given the volume of business 
that the CBS could provide. 
 
¶9. (C) Durgham's efforts to keep the CBS dominant depend upon 
continuing political support from the Minister of Finance, 
contacts suggest.  Durgham still has that support, although 
its depth is unclear since most people involved in the sector 
state that his personal relationship with Hussein is poor. 
In addition, Durgham's father Ahmed was removed from the 
Ba'ath Regional Command during the June 2005 reorganization 
of the Ba'ath Party leadership, which also weakened Durgham's 
position.  All of this may explain why, to date, he has been 
conspicuously alone in his public efforts to contain the 
fallout from Section 311 sanctions. 
 
 
... But Authority Rests with the Minister of Finance 
 
¶10. (C) Most contacts state that Hussein currently is the 
final arbiter on financial issues and is attempting to 
consolidate control over all aspects of the banking and 
monetary sectors under the Ministry.  He heads the economic 
bureau of the Ba'ath Party's Regional Command, which gives 
him access to President Asad and an increased ability to 
influence the country's economic policy.  Hussein reportedly 
does not like Meyaleh personally, and is attempting to 
control the development of the private banking sector. 
Apparently showing his willingness to take any opportunity to 
undercut Meyaleh, contacts state that Hussein recently 
overruled the Central Bank Governor and limited the amount 
Syria's private banks could invest in new private insurance 
companies, even though most contacts believe that the 
decision was short-sighted and bad for the sector (ref G). 
In addition, Hussein allegedly is considering allowing SARG 
entities to own up to 25% of new private banks, which 
contacts fear would provide the Ministry with greater control 
over the sector. 
 
¶11. (C) Comment: The general consensus among contacts is that 
the banking and monetary sectors lack leadership and 
direction.  The seeming zero-sum contest among the principals 
may be an inevitable by-product of the regime's "divide and 
rule" management style.  Minister of Finance Hussein 
currently is allied with CBS Director General Durgham against 
Meyaleh at the Central Bank in the struggle for control of 
the banking sector, but Hussein's support appears to be 
conditional and limited by his latent personal dislike of 
Durgham.  This leaves Syria in the unenviable position of 
needing to undertake reforms while its key financial 
institution is in decline under the pressure of Section 311 
sanctions, and before any other institution is capable of 
filling the ensuing vacuum. 
SECHE