PLACING CART BEFORE HORSE, AND THE REIGNS IN THE

C O N F I D E N T I A L DAMASCUS 000669 SIPDIS SIPDIS NEA/ELA TREASURY FOR GLASER/SZUBIN/LEBENSON NSC FOR ABRAMS/DORAN/SINGH EB/ESC/TFS FOR SALOOM E.O. 12958: DECL: 02/16/2016 TAGS: ECON EFIN EINV SY SUBJECT: PLACING CART BEFORE HORSE, AND THE REIGNS IN THE WRONG HANDS, AS SYRIA RUSHES TO ESTABLISH STOCK MARKET Classified By: Charge d'Affaires Stephen Seche, reasons 1.4 b/d ¶1. (SBU) After almost eight months of inactivity since President Asad signed the Syrian Security and Exchange Commission (SSEC) law in June 2005, local press reported this week that a commission finally has been named by presidential decree to draft the law for the creation of the stock market itself. The commission has six months to draft the new law and present it to the Prime Minister for review. Most contacts with whom Post spoke derided the announcement, arguing that the government is rushing to develop a stock exchange without first establishing the proper personnel or conditions. Few contacts conveyed confidence in the commission's chairman, seventy-one year old Dr. Mohammad Imadi, who, although a thirty-five year veteran of government service including several terms as Minister of the Economy, has no experience in financial markets. Contacts describe him first and foremost as a regime loyalist who will follow the instructions of the Ba'ath regional command. ¶2. (C) Contacts among independent Syrian economists believe that Syria's stock market most likely will fail because Syria lacks the mechanisms and regulatory environment to properly determine which companies should be listed on the market, assess their value, and protect investors. Basel el-Hamwi, chairman of Bank Audi Syria, said flatly that he would not list his company on the exchange, because the pool of listable companies is too small to generate any real market activity, resulting in all listed companies being chronically undervalued. Dr. Aymen Midani, who helped draft Syria's SSEC law, said that the commission should have been charged with creating a system of governance, developing standards for accounting and auditing, and establishing regulations for the disclosure of financial information before beginning work on a stock market law. Midani stated that in Syria's corrupt business environment, in which companies regularly hide profits and at least one major company, SyriaTel, maintains its own trading room, Syria risks destroying investor confidence in its financial markets by not addressing governance and transparency issues first. ¶3. (C) Comment: The rush to develop a stock market without first establishing the conditions under which the market can succeed highlights again the poor state of SARG economic-reform planning, lacks a plan for economic reform, and sets up the reformers in government to either be contradicted or see their grand announcements quietly come to naught. At best, the stock market will generate a few IPOs and inject very limited liquidity into Syria's capital-starved private sector. At worst the stock market will become another vehicle for the corrupt classes to claim more of Syria's wealth. SECHE