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Syrian tycoon's fall from grace may herald new pledges of reform

By Tim Lister, CNN
  • NEW: A senior U.S. official calls Makhlouf's turn towards charity "almost ludicrous at this point"
  • Rami Makhlouf, Syria's richest man, is selling his holdings in Syriatel
  • A Syria watcher says Makhlouf did not give up the mobile phone company willingly
  • "Makhlouf became a liability, a symbol of corruption," Ayham Kamel says

(CNN) -- Syria's richest man has rarely sounded contrite. But Rami Makhlouf -- a confidant and cousin of President Bashar al-Assad -- looked distinctly subdued when announcing that he was selling his holding in Syria's mobile phone network, Syriatel, to help Syria's poorest.

He tried to make it sound like a Gatesian gesture, saying he wanted to sell the shares, some 40% of the company, to benefit tens of thousands of Syrians. Why now? "Because we are so keen on preserving the nation, its land, its people and its leadership, and so we don't become a heavy burden to this nation," he said Thursday.

Syria-watcher Ayham Kamel at the Eurasia Group says the assets will be substantial and that Makhlouf did not give up the crown jewels of his empire willingly.

"Makhlouf became a liability, a symbol of corruption. It was only a matter of time before the president sidelined him," Kamel says. Makhlouf (like Assad's brother Maher) has been a target of some protesters since the country's current unrest began. And offices of Syriatel in the southern city of Daraa have been attacked.

A senior official with the U.S. administration said Friday that Makhlouf's apparent turn toward charity is "almost ludicrous at this point."

"In fact, one of the things that we saw today were that marchers had signs outside Damascus, Idlib and Hama that were actually mocking Rami Makhlouf's actions. So a few positive steps, but not nearly enough, and it's far, far, far too slow, combined with the growth of marches, to suggest that the Syrian public's patience is running out," said the official, who did not want to speak on the record because of the diplomatic sensitivity of the issue.

It would appear to be a rapid fall from grace for a ruthless businessman who was reputed to control some 60% of the Syrian economy, with interests in construction, tourism, minerals and mobile communications. Just last month, the 41-year old magnate was quoted in a New York Times interview that the regime would "fight until the end," warning: "They should know when we suffer, we will not suffer alone."

President Assad is said to have been angered by that interview.

But Joshua Landis, director of the Center for Middle East Studies at the University of Oklahoma, says there is little clarity about what Makhlouf is actually surrendering, and he suspects negotiations are continuing with the government.

So opaque is the ownership structure of Syriatel that it's difficult to know how much Makhlouf's gesture will be worth. The company is not even listed on the Damascus Stock Exchange. He also controls an array of other companies, some based in tax havens abroad.

Landis believes Turkey is likely pressurizing the Syrian regime to reform, and fast. Turkish Prime Minister Recep Tayyip Erdogan has built himself a role as regional leader and met a Syrian envoy earlier this week.

"Turkey can act as a shield for Syria against sanctions and other intervention," Landis says, "but it's demanding deep reform."

Among the opposition, the first reactions to Makhlouf's announcement have been, at best, skeptical. One activist told CNN: "Whatever he does, Rami Makhlouf will not change the opinion of the people. ... He has arrived late and we do not care about his charity."

Another wrote online that Makhlouf "only donated Syriatel to rebuy it later cheap with Syria's money."

According to U.S. diplomatic cables from 2008 and 2009, many of Syria's middle class have grown to resent Makhlouf's stranglehold on the economy.

One cable, published by WikiLeaks, recounts the gleeful reaction online among Syrians when Makhlouf was subjected to financial sanctions by the United States. "As for Santa Claus Makhlouf who is showering us with his deeds," wrote one, "could he explain to us where did he bring his first millions from?"

Analysts say that besides (and because of) Syria's political turmoil, its economy is rapidly worsening. Unlike other countries in the Middle East, Syria has modest oil reserves, though its natural gas production has risen. U.S. and now European sanctions have discouraged foreign investment and stifled the banking sector. Inflation is rising and shortages are becoming more common.

In 2009, one U.S. Embassy cable said that Syria's "most acute economic problems must eventually be addressed to maintain the state's long-term viability." Even then, unemployment stood at an estimated 30%, as did the rate of inflation. "Even upper-middle class Syrians are having trouble putting food on the table," it said, quoting one minister as saying that "the average Syrian is spending 42% of his income on food."

Like other Arab governments facing protests, Syria has raised wages for government workers and fuel allowances. In a country where about one-third of workers get their paycheck from the state, that could amount to $1 billion a year, according to some estimates. The Syrian central bank has raised interest rates to attract funds, but that will also hurt businesses.

"The regime clearly understands that it has to do something," says Landis, and that includes "opening the doors to greater participation in the economy."

Kamel of the Eurasia Group expects Makhlouf's departure to be the first installment of a renewed push by the regime to convince enough of the opposition that it can and will implement change, and he believes reformers have President Assad's ear. He anticipates that Assad will address the Syrian people in the next few days with bold reform proposals, even raising the possibility that the rule of the Baath party could be challenged.

Landis, who also is editor of the blog Syria Comment, says Assad's challenge will be to reach out to Syria's silent majority -- those who have not yet taken to the streets -- and persuade them that the regime can provide both reform and stability. At the same time the opposition will continue to insist that the regime will never deliver on any promise, and hope that more Syrians will lose their fear of the security forces.

But Landis says Assad has another dilemma.

"The integrity of the regime is based on the integrity of the family," he says, and real reform could unstitch the clan network that controls Syria.

"If Assad offers the sort of concessions the opposition wants, then he's going to commit political suicide."

CNN's Reema Khrais and Saad Abedine contributed to this report.