Op-Ed: Libya at war: “FX Surcharges Vs Petrodollars” – the reality

By Husni Bey.

(Photo: Sami Zaptia).

Milan, 28 January 2020:

The dominant call by all participants at the Berlin Libya conference on 19 January addressed to all parties at war in Libya were, in order of importance; “a fair and equitable distribution of oil revenues”, “implement the UN arms embargo” and “stop using foreign mercenaries”.

All participants expressed fear and reservation that the Libyan war may generate the potential regrouping of terror groups threatening neighbouring nations and massive migration to Europe.

The world leaders convened in Berlin agreed that the true mover of the war in Libya was primarily economic in nature and driven mostly by the cost of money to the various players: the Libyan dinar versus the US dollar (LD v US$). Many leaders and participants misrepresented the call as “distribution of wealth” and there was lesser talk about “fighting terror”.

Terror and migration are becoming more of a potential outcome of the war rather than the motive of the ongoing war per se.

In my opinion and in my analysis, the Libyan war is definitely not about the distribution of wealth. Libya is a rentier state, where the 85 percent of the national budget is allocated to the wages of public servants (1.8 million civil servants + 500,000 employees of government companies and 200,000 socially-assisted citizens, giving a total of 2.5 million state-sector salaries in a nation of 7.5 Libyan citizens). In addition to this there is the state subsidies of energy and fuels – which is the cheapest in the world!

The war is definitely about monetary wealth management and the cost of money. It is a war that can best be described as “LD vs USD multiple rates”.

The National Oil Corporation (NOC) and Libyan and foreign oil companies have joggled, and skilfully managed, to maintain Libya’s oil and gas flowing through a semblance of neutrality to generate revenues of over US$ 22 billion annually, maintain foreign CBL reserves at above US$ 85 billion in addition to over US$ 15 billion of  Libya Investment Authority (LIA) deposits. These total over US$ 100 billion.

On the 17 of January, the unexpected became a reality. Two days prior to the international Berlin conference on Libya called by German Chancellor Angela Merkel and attended by the UN Secretary-General, presidents, prime ministers and the US Secretary of State, the Libyan Petroleum Facilities Guards (PFG), whose job is to keep Libya’s oil flowing, ordered the stoppage of the oil flow within Libya’s eastern oil Crescent and oil ports, bringing production down from 1.2 million barrels per day to less than 250,000 barrels p/d.

Despite this and the breaking on multiple occasions of the verbally-declared stoppage of warfare, most Libyans had (and still have) high hopes, wishes and faith for a UN resolution calling for ceasefire and adopting the recommendations of the Berlin Conference.

All are hopeful of a permanent ceasefire, a return of all internally displaced persons and the return of the parties to the political process under the auspices of the UN – as was officially supported by four permanent ,embers of the Security Council and all  other attendees in the persons of the UN Secretary-General, presidents, prime ministers and ambassadors.

What about the “LDs vs USD” war?

Each of the two opposing parties in the Libyan dispute brands itself as the rightful army while labelling the opposing fighters as renegades (militias, warlords, criminals and or terrorist). The NOC, meanwhile, caught between the two and maintaining a declared neutrality, produces the oil, sells and collects all revenues which it deposits into an account which it does not manage – but is managed by the Tripoli-based CBL.

One of the contending parties in the Libyan conflict – the coalition of the eastern-based House of Representatives (HoR), the Khalifa Hafter-led Libyan National Army and aligned forces (LNA) and the eastern-based CBL – control most of Libya’s oil production that generates the petrodollars feeding the official Tripoli-based CBL accounts. But the eastern coalition has no access to the petrodollars at the official free of foreign currency sale surcharges at 1.400 LD per US dollar. To have access to US dollars, the east is forced to buy them at a minimum cost of 3.650 LD/USD or worse on the black market at LD 4.400 per USD – a 300% premium!

The other party in the conflict located in western Libya – the State Council, the Government of National Accord (GNA) , and the Tripoli CBL – manages Libya’s state revenues and considers itself the sole and rightful party permitted to buy the USD at the official government rate of LD 1.400 per USD – less than a third of what it costs the eastern party or coalition.

A letter of exemption from FX surcharges signed by Presidency Council President Faiez Serraj and accepted by Tripoli CBL Governor Saddek El-Kaber can make anyone a millionaire overnight! Whether this is justified or not, this kind of overnight money can turn an angel into a devil and make many devils ask and insist on receiving the same overnight fortune – at the stroke of a pen.

Worse still is the Tripoli CBL’s unwavering decision to switch off the Inter CBL clearing system, practically stopping the clearance, access and trading in FX and at any rates for banks operating in the east of Libya, such as Waha Bank, National Commercial Bank, Credit and Development Bank (representing 35% of national depositors ). This will soon affect branches of major banks in the west of Libya as customers start to move their operations to branches of banks headquartered there such as Jumhuriya Bank, Sahara Bank and other banks.

The closure of the oil flow is in retaliation for the Tripoli CBL closing down the inter-bank clearing process for eastern-headquartered banks. The CBL must reconsider this decision. This step, in my view, must be reversed.

Equally, the FX sales surcharge must be applied by the Tripoli CBL to every transaction to level the field; be it government, public, private, trading or infrastructure. The long-discussed subsidy reform must be implemented with subsidies replaced by cash transfers into individual Libyan’s accounts to have an equitable distribution between all and mitigate the corrosive effect of fuel and other types of smuggling of subsidised goods. And finally, the Children’s Allowance decreed by law since 2003, but long frozen, must be paid out.

 

Husni Bey is one of the leading Libyan businessmen and the chairman of the Beyson Group which owns a number of companies including in the retail, oil and gas, banking and telecoms and IT sectors.

These views represent the author’s views and do not necessarily reflect those of Libya Herald.

 

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