Libya Tribune

By Jason Pack

This paper argues that peace in Libya can be achieved via a Libyan-led International Financial Commission empowered with the tools to compel transparency and reform Libya’s institutions and dysfunctional incentive structure.

.PART FOUR

Is the International Community Sovereign or Partially Sovereign in Libya?

Why should the international community have any role or legitimacy in remaking Libya’s economic structures and complete the trajectory of the anti-Gadhafi uprisings?

Firstly, because since 2014, the Libyan conflict has become a penetrated system whereby the armed actors and institutional heads function primarily due to the support or legitimacy that international actors bestow upon them.

Secondly, my historical and legal research has postulated28 that Libyan institutions were semiindependent under Gadhafi, developed semi-sovereignty in the political vacuum in the wake of Gadhafi’s ouster, and via the Skhirat treaty process international stakeholders have granted them a claim to complete sovereignty.

In short, the “sovereignty” of the CBL or the Housing and Infrastructure Board (HIB) — in as much as they exist — has been granted by the UN and international actors and not by Libyan law.

The reason for this is twofold: firstly, these institutions are merely shells from the Gadhafi period and it is international actors’ willingness to accept them as legitimate that has enshrined them in the Libyan scene, and secondly, since 2014, Libya has lacked a sovereign authority.

Rather than using its position of authority to undo this institutional morass, much of international policy since 2014 has sought to insulate the CBL, LIA, Audit Bureau, and the NOC from the civil war and from partisan meddling, as if they were true sovereigns in line with their designation in the Skhirat Agreement.

In fact, as I have demonstrated elsewhere the UN mediation process overtly granted sovereignty to Libya’s economic institutions to make sure that the diplomatic and business communities have interlocutors to deal with.

As it pertains to the NOC this was possibly a noble and necessary goal to prevent complete financial and humanitarian ruin, but in the case of the CBL, ODAC, GECOL, HIB, and others, this attempt merely froze the structures of the Libyan economy in their status quo ante positions without helping to create the political environment needed to give these institutions coherent economic functions.

Its implication was to fix in place a form of dysfunctional centralization and hence lead to cycles of violence to control Tripoli — where the institutional headquarters of these bodies are based.

Inherently, decentralization must be a part of any reform process. “Libyan institutions were semi-independent under Gadhafi, developed semi-sovereignty in the political vacuum in the wake of Gadhafi’s ouster, and via the Skhirat treaty process international stakeholders have granted them a claim to complete sovereignty.”

By issuing protections to status quo ante institutions, the international community has treated these institutions as if they truly operated in a vacuum of governance and sovereignty and hence had become completely sovereign entities.

The wording chosen in the Skhirat Agreement text in 2015 actually accords with the UN Support Mission in Libya’s and major international players’ ensuing actions.

This wording and complimentary political actions defy both reason and facts. The key, therefore, to untying the tangled knot of the Libyan crisis lies in acknowledging the semi-sovereign status of the country’s economic agencies, and hence, their accountability to both the Libyan people and subordination to the international institutions and treaties from which Libyan sovereignty derives.

This legal realization gives the legitimacy for key Libyan stakeholders and their international allies to call for the creation of the IFC.

Some might argue it could be brought into being even without comprehensive Libyan buy-in, as there would likely be various incumbents and status quo powers that would fear the loss of sovereignty that any reform would occasion.

One school of thought holds that after the fall of the Gadhafi regime and the failure of a noninterim sovereign government to emerge within the time limits set out by the Aug. 3, 2011 temporary constitutional declaration, the international community, and the UN in particular, became effectively obligated to act as in loco regis for the vacant Libyan sovereign.

Seen from this legal perspective, the international community and the UN might have both the right and the duty to exert their sovereignty and either dismantle or reform the alphabet soup of semi-sovereign dysfunction.

In the eyes of most Libyans, the institutions created in the Gadhafi period are as illegitimate as the pots of money squirrelled away by Gadhafi cronies offshore, frequently by using the semi-independent prerogatives of these institutions.

If international recognition of GECOL, the CBL, or the LIA was suspended or assets frozen (as it has been done at various times), it would then become sanctionable for multinational companies to work with these entities.

This would create exactly the requisite necessity for key stakeholders to call for an international commission.

Which International Powers have the Legitimacy, Neutrality, Technical Expertise, and Know-How to Help Catalyze and Support a Libyan-Led Economic Reform Process?

The answer comes into focus if we use the process of elimination. Only the U.S. and the UK are candidates for the role of convener of a Libyan-led IFC.

The French, Italians, Russians, Saudis, Jordanians, Qataris, Turks, Emiratis, and Egyptians are all perceived as too biased toward one side or another.

The rest of the European and regional powers are simply not powerful enough (to punish spoilers and encourage transparency) or not interested enough to be able to make a difference on their own, but can fulfil the role of gadfly (as the Germans are doing), hosts (as the Moroccans and Tunisians have done in the past and will in the future), or funders and implementers of specific technical and humanitarian assistance (as the Swiss, Dutch, and Scandinavians have done over the years).

The Franco-Italian feud over Libya has long been out in the open — and for the past few years it has prevented the formation of a unified Western front toward Libya.

Its geopolitical components are well known: the French focus on counter-terror as opposed to the Italian focus on stopping migration.

For each nation, Libya has become a more salient trope in domestic politics for the embattled leaders: the Gaullist rhetorical need for a strong French leader like Emmanuel Macron to “lead from the front on North African” issues, while the neo-populist Italian prime minister, Giuseppe Conte, also needs to demonstrate a hardnosed approach toward migration.

The economic drivers of this rivalry are less discussed. Both sides’ major oil companies have increased their holdings over the last three years and remain the only Western majors willing to put significant capital investment into Libya.

France wishes to become the economic superpower of the entire Mediterranean and Italy wants to avoid losing the only foreign market where its companies retain a preponderance of power.

Although France’s GDP is only 25 percent greater than Italy’s, its geopolitical leverage on foreign policy issues is many orders of magnitude greater than Italy’s.

This imbalance fuels the animosity. As this feud is likely to escalate, attempts to reform the Libyan economy cannot be made prisoner to the zero-sum logic of feuding foreign powers, nor can they be associated in the Libyan mind with that type of old school colonial policy logic.

France and Italy must be included in any IFC process, but they must be outside supporters rather than active participants.

Since 2011, the U.S. has established itself as the convener of a series of occasional neutral-venue meetings called the “Libyan Economic Dialogue.”

These meetings bring together the main Libyan economic officials (e.g. rival heads of semi-sovereign institutions along with relevant politicians and ministers).

This process has been the sole coherent external impetus for institutional unification and reform, and progress has been slight.

As stated in the introduction, the UN and the great powers have mostly invested their efforts in counter-terror, political mediation, and migration issues.

At the 8th Economic Dialogue meeting on June 5, 2018 plans to cut fuel subsidies and effectuate an indirect devaluation of the dinar via taxes on letters of credit (LCs) were announced.

The ensuing taxation on foreign currency transactions did result in some modest successes when it was first implemented in the fall of 2018 by narrowing the gap between black market and official rates of exchange for the Libyan dinar.

But implementation became bogged down in November 2018 as backlogs at customs at many ports led to stoppages at Khoms in particular and the announcement of a grace period on the LC tax implementation until 2019.

In 2019, the surcharge on LCs (which functions as a foreign exchange tax) had been successful in keeping the dinar strong and decimating the black market, but those successes have lessened the willpower of the status quo party (major political figures in the GNA along with the CBL governor) to undertake the major structural reforms that are truly needed.

The status quo party has defeated the economic dialogue process by doing just enough to avert sufficient American or domestic pressure to remove them.

In short, the economic dialogue process has proved incapable of fostering the political will among Libyans for root-andbranch reforms or delivering Libyans the technical/economic expertise needed for the implementation of big picture changes.

In a way, the economic dialogue process has acted as a fig leaf covering up the status quo party’s insistence on thwarting reform.

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Jason Pack is a consultant, author, and commentator with over two decades of experience living in, and working on, the Middle East. His articles have appeared in The New York Times, The Wall Street Journal, The Spectator, The Financial Times, The Petroleum Economist, The Guardian, Foreign Policy, and Foreign Affairs.

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Middle East Institute