* Differences linger, but agreement on Lebanon
* Saudi investor appetite for Syria recovers
By Khaled Yacoub Oweis
DAMASCUS, March 15 (Reuters) - Saudi Arabia is discussing extending development loans to Syria as ties between the two countries improve but there will not be direct cash assistance, the Saudi central bank governor said on Monday.
Diplomatic activity between Damascus and Riyadh picked up in the last months after they agreed to set aside their political differences and lower tension between their allies in Lebanon, which is a recipient of large Saudi cash injections.
Ties deteriorated after the 2005 assassination of Rafik al-Hariri, a Saudi-backed Lebanese member of parliament and former prime minister, resulting in the waning of Saudi investment appetite and aid to Syria.
“Syria is one of the most important Arab economies. It’s a promising market to whoever has money to invest,” Muhammad al-Jasser, head of the Saudi Arabian Monetary Agency, said after attending a banking conference in the Syrian capital.
“The Saudi finance minister was in Damascus and talked about this and what the Saudi Fund for Development is doing along with other Saudi government institutions,” he added.
Syria needs billions of dollars in investment to overhaul its infrastructure, resuscitate its drought hit east, lower unemployment and deal with a 2.5 percent annual population growth.
Most of the investment has been by amongst others Syrian expatriates and from the Gulf into banking and real estate. Economic growth fell to 3 percent last year compared with 5.2 percent in 2008, according to the World Bank.
Asked whether Saudi Arabia could deposit cash directly into the Syrian central bank, as it did with Lebanon, Jasser said such a move “will not be considered”.
But he said that the Saudi Fund for Development signed a memorandum of understanding with the Syrian finance ministry last week to lend $140 million to raise output at a power station in Syria.
If extended, the loan will be the first since the Hariri assassination, which Saudi-backed politicians in Lebanon blame on Syria. Damascus denied any involvement.
Syria, which is under U.S. sanctions for its support of militant groups, has opened several sectors of the economy to private investment, especially banking and insurance, since President Bashar al-Assad succeeded his late father, Hafez al-Assad, in 2000.
The ruling Baath Party, which Bashar controls, nationalised large parts of the economy and enacted bans on private enterprise when it took power in 1963. It also imposed emergency law which is still in force and banned any opposition.
In a sign of changing investor mood, Saleh Kamel, a leading Saudi businessmen, addressed an investment forum in Damascus this month.
He said Syria was underperforming compared to Lebanon, its much smaller neighbour, because of what he described as antiquated laws, corruption and a lack of pro-investment culture.
Syria supports the Lebanese opposition led by the armed Shi’ite movement Hezbollah, which is also backed by Iran. Saudi Arabia is the political patron of Lebanese Prime Minister Saad al-Hariri, son of the late Rafik al-Hariri.