Changing Lifestyles : Syria Sways to New Beat as Law Lures Investment : Damascus nightclubs are packed with nouveaux riches .

The 28-year-old driver never even flinched the other day when his passenger, trying to make a little joke, asked whether he could find the latest Red Hot Chili Peppers rock ‘n’ roll album in this ancient city-turned-Arab bastion of Soviet-style socialism.

“ ‘Blood Sugar Sex Magik’?” he replied, lowering his Porsche sunglasses and raising the eyebrows of a rock connoisseur.

His passenger nodded, stunned.

“No problem.”

The driver wheeled his late-model Ford around the twisting, millennia-old lanes of the walled city of Old Damascus, careened past a dozen or so ancient stone mosques and churches, through downtown with its concrete behemoths of socialist architecture and finally to tree-lined Shaalan Street, where he parked.

“Here,” he said, pointing with no little satisfaction to a small boutique marked by a neon sign in Arabic and English as “Nai Music Shop.”

“Here, you find Red Hot Chili Peppers. Here, you find everything.”

Inside, a young man behind the counter sporting a tiny gold earring lost no time with his new customer, quickly producing this year’s 207-page “Digi-Chrome Catalog No. III,” complete with order form and a Season’s Greetings card listing “latest releases”--everything from AC/DC’s “Live” and Prince’s “Symbol” to Nai’s latest collector’s set called “Now That’s What I Call Music, Volume 23,” including Dr. Spin’s “Tetris” and Peter Gabriel’s “Digging in the Dirt.”

To fully appreciate the astonishment of Nai’s foreign customer, you should recall that not long ago, Syria’s economy was so insulated from imports and so heavily steeped in the socialism of President Hafez Assad’s long-ruling Baath Party that you had to hunt for toilet paper.

As it turns out, Nai Music Shop--which produces some of the cleanest audio-cassette recordings in the Middle East by importing blank chrome tapes from Germany and the latest compact discs from the United States--is just one of thousands of entrepreneurial examples of a quiet revolution throughout Syria.

The seeds of the country’s deep social changes were planted more than a year ago in an extraordinary document called Investment Promotion Law No. 10. Although largely unnoticed by most American corporations and exporters since it was decreed by Assad in June, 1991, “Law 10,” as it has come to be known, is single-handedly changing the face of a country.

Offering generous tax exemptions for a wide array of new private-sector companies--virtually any new enterprise in fields ranging from agricultural production to oil exploration, transportation to tourism, taverns to street commerce--the law explains itself under Section 6:

“The aims of the above provisions are to give complete freedom to the investors for the import of their needs.” And that is from the same government that throughout the ‘60s, ‘70s and ‘80s enforced import bans and foreign-currency controls so strict that ketchup was an unknown commodity.

“Now,” observed one Syrian entrepreneur who asked not to be named, “you can choose between three or four kinds of ketchup. You can spend hours shopping, trying to decide. So many choices.”

Behind Law 10--and just about everything that has happened in Syria during the last 22 years--is Assad, the authoritarian leader who is as renowned for his political pragmatism as for his totalitarian and ruthless style of rule.

“President Assad may well be a brutal dictator, but he’s a shrewd politician as well, and he’s committed to this personal legacy to be remembered as the father of a modern Syrian state,” said one diplomat. “Law 10 is an extension of that.”

In fact, Assad was among the first of the financially ailing Soviet allies to sniff the winds of change that led to the Soviet Union’s disintegration in 1991 and triggered the wave of market-force reform now sweeping through the former East Bloc nations. Assad’s own economy was moribund in a region of oil-rich boom states, and the president “felt strongly the need to adjust the policies of government,” as one senior Syrian official put it.

Then, Syria struck oil.

In a secretive nation where all statistics are considered state secrets, officials are tight-lipped about the extent of the oil find, insisting only that it is large enough to have commercial export potential. But it was significant enough to draw some of the world’s largest oil explorers to Syria, among them Marathon, Shell and Unocal.

“Really, there is no inconsistency here,” the official added, when asked how the policy of catering to foreign investors squares with the nation’s official socialist ideology. “The Baath philosophy was meant to be progressive, open to change.”

And that change certainly is the order of the day in Damascus, where the new economic boom is changing the face not just of the Syrian economy but of the Syrian capital itself.

The result: Boom Town, Syrian-style.

Every night, the city’s downtown restaurants and nightclubs are packed to capacity with nouveaux riches , the sidewalks filled with late-night revelers, many in the latest Paris fashions. On weekends, the glut of glitzy new cafes and nightspots routinely turn away those naive enough to come without reservations.

City streets where rattling old East Bloc smoke-belchers once nudged their way around potholes are now jammed with late-model Volvos, Fords and Mitsubishis. Modern office buildings are fast filling up with new corporate names, both European and Arabic.

Hundreds of new shops offering computer hardware, videotape cassettes, imported high fashions and electronic goods spring up each month, all of them braving scheduled daily power cuts by hooking up new imported generators.

And, of course, the city’s cabarets, a Damascene tradition deeply rooted in the quarter-century that Syria spent under French colonial rule before 1946, are taking on a different and strange new air.

Take the Crazy Horse, for example--a downtown institution that once drew oil-rich Saudi Arabian sheiks with the promise of cheap liquor and scantily clad Arab dancing girls. It featured a new revue the other night that seemed to sum up the changing face of the capital.

The scores of customers who each shelled out 400 Syrian pounds (about $10) to get in, and who paid $2.50 for a beer plus another $6 for an obligatory bowl of fruit and nuts, included just three Saudis. The rest of the big spenders were Syrians--new heroes of Law 10.

And, perhaps for the first time ever, the dancing girls were not young Arab women from impoverished families, women who donned their scanty sequined costumes largely out of economic despair.

The women, explained the Crazy Horse’s burly bouncer that night, were “fresh imports from Romania.”