BEIRUT, Lebanon - Syria's steps to ease foreign exchange and trade restrictions may have eased mounting pressure on its currency but fall short of extensive reforms it needs to open up its state-dominated economy.

Syria announced on Tuesday a half-percentage point rise in interest rates and allowed certificates of deposit for the first time, moves bankers and analysts say were aimed at stopping jittery Syrians turning to the black market for dollars as international pressure on their country intensifies.

Syria also eased strict foreign exchange controls introduced after the country's financial sector was nationalised in the 1960s, allowing Syrians to buy hard currency and private sector exchange firms to replace black market money-changers.

Analysts and bankers welcomed the package as a step on the road to reform but said Syria was still a long way from a modern financial sector.

"This package is aimed at bolstering the Syrian pound and pre-empting any run on the currency, which is fine. It is part of ongoing banking and financial reforms but a lot more needs to be done," said economist Nabil Sukkar, managing director of the Syrian Consulting Bureau for Development and Investment.

"The government is working on reforms, to give them due credit, but Syria only moved into the modern banking system a year and a half ago so there is much to be done."

The Syrian pound has already recovered after slipping two percent to reach 56 against the dollar on the black market earlier this week, following U.S. accusations that Damascus was not doing enough to stop Islamic militants crossing into Iraq.

A probe into the killing of Lebanese former Prime Minister Rafik al-Hariri has added to negative sentiment amid Lebanese media reports that Syrian officials could be implicated.

U.N. investigators have been questioning Syrian officials in connection with the February assassination, in which Syria says it played no role.

NO POLICY SHIFT?

The new one-year certificates of deposit would be some of the most sophisticated investment tools available in Syria to date and, with yields of nine percent, could be effective in stopping Syrians from switching to dollars.

But while the recent decree allows local banks, most of which are state-owned, to issue CDs for the first time, it does not promise that the central bank will issue any itself.

The new measures allow Syrians to buy up to $3,000 for travel and larger amounts subject to conditions, after restricting foreign currency transactions for decades to limited amounts mainly for medical and educational needs.

That step may persuade Syrians not to go to the black market for foreign currency but does not represent a significant policy shift, bankers and analysts say.

"These changes are cosmetic. They are not a profound remedy but changes introduced to absorb negative political sentiment," said a Lebanese banker working in Syria. "Last week there was huge demand for dollars due to the political situation so they ran to this, but it is not long term."

MORE TO BE DONE

Syrian President Bashar al-Assad promised economic reforms when he took office in 2000, but progress has been slow.

Syria allowed the first private-sector bank to open last year, ending four decades of state control, and a handful now operate as joint ventures between Syrian and foreign investors.

While they report brisk business, bankers have long urged the government to lift foreign exchange restrictions entirely and introduce modern monetary and financial instruments such as treasury bills to facilitate interbank lending.

Sukkar said Syria was working on introducing treasury bills, which would allow the state to borrow without printing money, giving it a monetary policy with which to control inflation.

He said a team from the International Monetary Fund was in Damascus to help authorities work on introducing treasury bills, although that could take a couple of years.

As part of the new measures, local banks will also be allowed to issue letters of credit for the export and import of 950 items comprising about a quarter of Syria's total trade.

The Syrian government has long restricted trade, striving instead for self-sufficiency. Merchants have traditionally turned to Lebanese and other banks in the region to finance their transactions, exposing them to political and economic ups and downs in those countries.

Bankers and analysts say the move may facilitate trade to some extent, but largely aimed to circumvent the black market and shield its financial sector from upheavals in Lebanon.

"These steps are good, we back them and hope they continue," said Rateb Shallah, head of the Syrian Chambers of Commerce.

"Business happens whether it is allowed or not if there is an economic need and benefit. Since this is the case, why don't we let all economic operations take place within the system?" (Reuters)