By Sami Zaptia.
London, 22 April 2020:
In a televised interview for Libyan WTV channel yesterday, Finance Minister Faraj Bumtari, representing the internationally recognized government in Tripoli, accused the Tripoli Central Bank of Libya (CBL) of opposing his government’s economic reform policies and not controlling foreign currency in the market.
And although Bumtari attempted to cloak his specific attack on Tripoli CBL Governor Saddek El-Kaber, he all but pointed the finger at him when he pointed out that something changed after 2011 “which caused economic crises in the country’’. Upon further questioning, he refused to elaborate. However, many analysts have interpreted it as a reference to El-Kaber being appointed by the National Transitional Council (NTC) in 2011 as Governor of the CBL. His call for the reorganization of the CBL board is seen as tantamount to calling for El-Kaber’s sacking.
The attack comes on the back of increased criticism of the Tripoli CBL and its Governor Saddek El-Kaber over the last two weeks by Libya’s internationally recognized Prime Minister Faiez Serraj, the Libyan Business Council and the Libyan Banking Association.
In his lengthy televised critique, Bumtari said that corruption will grow in Libya when there is an active black market, pointing out that the rise in the dollar against the dinar indicates that there is a problem with liquidity, and a lack of foreign exchange control by the CBL.
The implication is that the CBL is either encouraging or turning a blind eye to the hard currency black-market which is causing hardship to consumers through inflated prices and a reduction in spending power and standards of living. There is a common perception in Libya that the black-market traders are in bed with CBL / commercial bank staff.
He pointed out that in 2019, US$10 billion was available to Libyan citizens on the black-market, adding: “This was an opportunity for corruption, because it is money without monetary control, which confirms the spread of corruption.”
He also noted that neighbouring countries such as Egypt and Tunisia do not have this amount of financial corruption because there is “strict” financial control over cash, which reduces the rates of corruption, “the situation in Libya is different, and those who get money illegally can move it to another country.”
With regards to the balance of payments, he said that this indicator was negatively in the years following 2011, except for one year, “indicating corruption in the state, money laundering smuggling. This is evidence of a problem with monetary control and financial transactions outside the banking system.”
Taking the CBL Governor to court
Bumtari denied rumours that he had filed a complaint against the CBL Governor with the Attorney General but acknowledged the existence of altercations in the correspondence between the two parties – but not to the extent of filing a legal complaint.
“The nature of our work is to cooperate as institutions, and there are some correspondence that have had quarrels. The purpose of achieving collective action is to find a real solution to the problem in which the Libyan economy is in, including taking into account the sensitive segments of society with limited income, retirees, basic pension holders, export and import conditions, etc.”
CBL should be reformed
He called on CBL to restructure and modernize its system and mechanism, and work on the formation of a new board of directors, to establish “correct and consistent policies”, adding that the central bank should open the way for his government to complete economic reforms. “As long as there is no foreign exchange control from the CBL, the dollar will raise against the dinar.”, he explained. The black-market rate has recently shot up from the high three-dinar nineties to over five diners per US dollar.
He reiterated that his government is considering replacing direct fuel subsidies (with direct cash payments) and resuming the stalled Family Allowance, noting that this will only be done by ensuring monetary policy and not pumping money abroad, so that it benefits the local economy.
Devaluation of Libyan dinar
Bumtari also mentioned that the Libyan economy has been suffering since the February 2011 revolution, especially with the decline of Libya’s oil production capacity, and low international oil prices. ‘‘This required reform of monetary policy and adjustment of the exchange rate and solving the liquidity problem, but the CBL opposed the changing the Libyan dinar’s exchange rate, and there was an unjustified fear of this move by the CBL.”
Control foreign currency flow in the market
He stressed the need for the CBL to control the flow of the dollar (in the black-market) and not in a random way, “the dollar is not a food commodity, and we must coordinate together by reference to the banking law, the policy of the government seeks to get rid of the smuggling and laundering of money, and to remedy inflation, which requires adjustment of the exchange rate, but the CBL did not respond to us, and there was a problem in opening direct remittances to small traders, which damaged the Ministry of Finance and reduced its revenues.”
‘‘The problem with the central bank is not with individuals but with an institution, there must be a monetary policy that cooperates with macroeconomic policies,” pointing out that something changed after 2011, refusing to disclose this thing, “which caused economic crises in the country. Monetary policy opposes the process of adjustment of the Libyan dinar exchange rate (devaluation) that would have treated many things and resumed development projects’’.
As mentioned earlier, CBL Governor El-Kaber has come in for some fierce criticism from a multiplicity of sides recently.
On 8 April, Faiez Serraj devoted most of his televised address, ostensibly to criticise Khalifa Hafter’s war on Tripoli on its one-year anniversary – to criticising El-Kaber. The critique was part of an ongoing battle between the Tripoli CBL and the Tripoli government as to who has ultimate control over economic and monetary policy.
Serraj had accused the Tripoli CBL of:
- Delaying the payment of state-sector salaries for three months.
- Delaying the release of the Emergency Budget.
- Unilaterally stopping the disbursement of foreign exchange.
- Attempting to force his government to raise the foreign exchange sale surcharge and setting a new rate without consultation.
- Halting the opening of Letters of Credit (LCs).
- Interfering in all the country’s decisions, including on, oil, health, Coronavirus, ammunition, municipalities and on rubbish collection.
- Failing to come up with reform policies.
- Failing to solve queues at banks.
Serraj had complained that the CBL was too rigid in its decisions during times of crisis, including the Coronavirus outbreak, the oil production/export stoppage and the war on Tripoli – that Libya was going through.
He had criticised the CBL for halting of the opening of LCs at a critical time for the country time when other countries around the world were increasing their strategic stocks of medical and food supplies. He placed the responsibility of this delay on El-Kaber, warning on 8 April that even if he did resume the issuing of LCs, it could be too late as the goods Libya needs may no longer be available during this Coronavirus crisis.
Serraj had said that his government through its Economy Ministry should be the competent authority making the country’s economic decisions – and not the CBL – and that the CBL should solve the country’s bank queues instead.
He had said that the CBL failed to come up with reform policies – because its board is split and called for the reunification of the its board.
The CBL should reform its institutions under its competency, make liquidity available, reduce bank queues, complete its board, set foreign currency sales surcharge – instead of the government – and provide a monetary policy – by concentrating on its areas of competency, Serraj had added.
The Libyan Business Council criticises the CBL and the Serraj government
Furthermore, on 16 April the Libyan Business Council had warned of the possibility of food shortages and price increases, especially in foodstuffs, due to the inflexible policies introduced by the Tripoli CBL on the opening of LCs.
Speaking to Libya Herald by phone from Tripoli, LBC Chairman Abdalla Fellah was very dismissive of the CBL’s belated decision (20 April) to resume the opening of selective LCs. He was very critical of both it and the Serraj government for not undertaking real economic reforms in Libya. He considered the September 2018 reforms as purely a revenue-raising mechanism by the Serraj government and the CBL – not true reforms.
Fellah insisted as long as the state sector still dominates the Libyan economy, with the state-sector salaries taking most of the state budget – there can be no talk of real reforms. He insisted that the private sector must be in the lead in the Libyan economy – if the country wants to make real progress.
The LBC had said that this was especially the case in view of the current conditions the country is going through and their ramification on prices, supplies and trade.
Fellah, had warned of the upward increases in prices in the local market and his fear of the scarcity of goods, especially food stuffs, due to the inability to import and the usual flow of goods as a result of the prohibitive requirements contained in the CBL’s 8 April publication No. (2) to local banks on the conditions for opening LCs.
In a very damning swipe at the CBL, Fellah had said that the CBL’s new conditions for opening LCs has returned businesses to the ‘‘times of directed trade’’, in a subtle reference to the bad old Qaddafi days where supporters and cronies of the regime received exclusive preferential treatment.
The accusation had come as the CBL had published a list of select companies it had opened LCs for. Accusations of corruption and favouritism had already been directed at it.
Fellah had added that this prohibitive LC policy expressly reflects the central bank’s hegemony in its restrictive decisions and publications that don’t take into account current difficult circumstances that the world is going through in general and Libya in particular, which will have consequences for the Libyan market and therefore on the citizen in the form of scarcity of goods and high prices.
In the same context, the LBC referred to the Libyan Banking Association’s letter of 15 April to the CBL raising the same concerns about the scarcity of goods and price rises if a flexible mechanism in the implementation of documentary credits was not reached soon in order to easily provide the necessary goods to citizens at these difficult times.
From the CBL’s point view, in lieu of the adoption of Libya’s permanent constitution and subsequent full elections, the CBL considers the successive governments since the 2011 revolution that overthrew the 42-year old Qaddafi regime, as short-term, interim governments with questioned legitimacy and, in the CBL’s view, limited mandate and authority. To this end, it sees itself as the apolitical long-term custodian of Libya’s accumulated oil wealth. It expects prudence and sustainable policies from these interim governments and fears their populist spendthrift policies seeking election or re-election.
This is especially the case in view of the war on Tripoli since April 2019, the oil blockade since January this year and the Coronavirus curfew since March.
LCs v black-market imports
It will be recalled that by opening LCs through the CBL – via their banks – importing Libyan companies gain access to the official lower exchange rate, as opposed to the black-market rate – and hence the clamour for LCs. Imports through official LCs are cheaper and less inflationary, but they use up fast depleting foreign currency reserves.
CBL accountable to no-one during political vacuum since 2014
Unfortunately, El-Kaber operates without accountability or control in a state with no institutions and a split parliament. His split board has failed to meet since the 2014 Libya Dawn militia coup that has split the country since. For what it is worth, the internationally recognized parliament has sacked him twice. He has refused to go, taking full advantage of Libya’s political split and power and legitimacy vacuums. His only support, at the moment, seems to be the international community – including recognition by the World Bank/IMF.
Tripoli CBL climbs down, issues belated decision to resume opening of LCs
Serraj speech to the nation: Attacks CBL and treasonous media, says international community concerned purely with self interest
Libyan Business Council warns of food shortages and increased prices due to CBL’s inflexible Letters of Credit policy