DAMASCUS,(Reuters) – Syria’s diplomatic standoff with the United Nations over Lebanon is delaying vital economic reform in a country facing rapidly diminishing oil reserves, a Syrian former World Bank economist said on Wednesday.

“The main casualty for this crisis will be economic reform,” Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment, told Reuters in an interview.

“It’s a pity because I thought we were finally about to jump into a new era of privatising and reform… but now investors might think twice in the midst of this political crisis.”

Syria has been adopting economic reform since Syrian President Bashar al-Assad succeeded his father in 2000.

Private sector industries now employ four times as many workers as they did in 2001. Last year four banks opened for business for the first time in the private sector and insurance companies are scheduled to open in 2006.

But just as Syria started moving toward a market economy it hit a diplomatic crisis over its alleged role in the February assassination of former Lebanese Prime Minister Rafik al-Hariri and 22 others in a truck bomb in Beirut.

Syria’s woes escalated late last year when an ongoing United Nations inquiry implicated top Syrian officials and their Lebanese allies in the murder. The Security Council has threatened unspecified action if Syria failed to cooperate with the investigation. Syria had denied any involvement.

Sukkar, who worked at the World Bank from 1970 to 1980, warned time was not on Syria’s side on the economic front.

In the 1980s Syria had one of the highest birth rates in the world, and as these baby boomers come of age they face poor job prospects. Unemployment hovers near 20 percent, and most of the unemployed today are under 24.

Oil reserves are drying up. Although the non-OPEC country produces a modest 425,000 barrels per day, Syria relied too much on its oil proceeds throughout the 1990s, Sukkar said.

“Syria will be a net importer of oil by 2008, which means we’ll be in a terrible situation because the oil sector has contributed about 70 percent of our foreign exchange proceeds and 50 percent of fiscal government revenues,” he said.

Syria, which has low labour costs, is known among its neighbours for bargain shopping in quality textiles made from local cotton, wool and silks.

But as the country opens up and $25 made-in-China men’s suits sweep the Souks, Syria must move toward high-end products to gain a competitive edge, Sukkar said.

“I don’t think we’ll be able to survive for a long time in the face of competition from China unless we shape up,” he said.

“We should rely on what we do best, like textiles and agriculture, and start making high-end textiles and value-added foods like canned goods and fruit preserves and dairy products.”

One in four workers is employed in the public sector. These 1.4 million workers are vulnerable to layoff when and if the country privatises, Sukkar said.

“I’m not for privatisation until we have a proper banking sector and a legal framework to give sound opportunities for the private sector, because if we privatise we’ll have to lay off many government workers and we can’t have a social problem on our hand,” he said.

A college-educated person starting out as a state employee in Syria makes about $100 per month. Many workers complain they are unable to make ends meet without accepting bribes.

“There’s so much corruption and those with connections end up getting the top contracts, which is what happens when there’s no transparency,” Sukkar said.

“Syria is still a raw country, and as long as we focus on creating the right framework that’s conducive to investors, there are many, many opportunities.”