Libya Tribune

By Jason Pack

For the last five years, the international community has tried a range of different approaches to mediating the Libyan civil war. All have failed.

.PART (III)

The Economic Angle as a Silver Bullet

  • To fix the Libyan economy, we must grasp its very essence. The structure of the Gadhafian economy was always an uncoordinated attempt at buying off the country’s different social segments and creating complex vehicles of patronage.
  • The Libyan economic system has not been reformed in any meaningful way since the 2011 Uprisings. It needs root and branch economic reform. Having a power sharing arrangement between leaders in Tobruk and Tripoli who have both long overstayed their mandates will not address this issue. Even courageous and far-sighted Libyan technocrats and leaders will not be able to implement the necessary reforms themselves as long as they are effectively held hostage by the militias that benefit from the current system.
  • Libyan reformers and leaders will, therefore, need to initiate the way forward by calling for the help and assistance of outside technocrats and the power of major international governments and institutions.
  • Holding elections without fixing the Libyan economy’s unique forms of dysfunction is simply a recipe for intensifying the ongoing war over access to the fonts of corruption, i.e. the Central Bank of Libya (CBL), the Ministry of Finance, the Budget Committee, and the Audit Bureau. Those positions need to be insulated from any military or electoral free-for-all. Moreover, before any short-term pain for long-term gain economic reforms are initiated, the technocratic Western-backed appointees to these crucial positions need to be separated from the political process via the IFC, which can take the heat when unpopular measures need to be implemented.
  • For economic reform to take hold, international actors can’t just work with existing interlocutors. The problem is that apart from the National Oil Corporation (NOC), all of Libya’s major semi-sovereign economic institutions are as deeply broken and counterproductive as they are entrenched. New interlocutors and a new economic framework must be created by reforming existing institutions. This is the task of the proposed IFC.
  • By what right can international actors tell Libyans, or guide them, concerning how to reform their economy? One school of thought holds that the international community, and the UN in particular, after the fall of the Gadhafi regime and the failure of a non-interim sovereign government to emerge are effectively obligated to act as in loco regis for the vacant Libyan sovereign (as they did in the period 1947-51 after Italy was forced to abnegate its claims to sovereignty after losing World War II, but before an independent Libyan state was formed).
  • Rather than holding more rounds of diplomatic conferences and peace negotiations, major regional and international powers need to rally around the establishment of the IFC with its headquarters in either Malta, Tunis, or London.
  • Both Russia and Turkey have billions of dollars of contracts with the former regime and in some cases with post-Gadhafi governmental entities. Total loss of those contracts is unacceptable to them, whereas fighting to gain a privileged position to get paid for both old contracts and obtain new ones provides a strong incentive to support a militia coalition they believe can secure these for them. Convincing these outside powers that a stable Libya is actually a win-win will be difficult, but reason supports this argument. Russia, Turkey, and others are far more likely to get some economic benefit from a stable Libya, not controlled exclusively by any given militia coalition, than from a country riven by civil war. The Libyan people, rival outside creditor nations, and international stability will all benefit from the same solution as well.
  • Libyans need to know that the world is not only interested in them for what they export (crude, arms, migrants, jihadis), but for the domestic well-being of Libyans and the health of the Libyan economy and body politic. Furthermore, in the long run fixing Libya will pay for itself, and the IFC should be funded partially by Libya’s sovereign wealth. Nonetheless, the major powers should be willing to put effort and funds in upfront to show Libyans that this new peacemaking approach “is for real.” This money will be essential to smooth the disruptions and deprivations that will otherwise emerge from the shock therapy of reforms that the Libyan economy needs.

Prescribing a Workable Solution in Ten Policy Recommendations

The below recommendations have been formulated in concert with many of the current and former heads of Libya’s most prominent semi-sovereign economic institutions, as well as recently retired senior British and American diplomats who have served in and on Libya. Over the last three years, I have conducted more than 15 such discussions/interviews. I have also discussed these ideas with key members of Libyan civil society and diaspora intellectuals. Courageous Libyans wish to initiate the needed reforms, but lack the help they need to get the ball rolling.

The ideas of those participants permeate this paper and constitute the core of the below:

“Ten Policy Recommendations to Remove the Economic Drivers of Libya’s Conflict and Set the Country on the Path to Prosperity and Human Capital Development.”

1. Establish an IFC with its headquarters in Malta, Tunis or London. It will have offices in Tripoli, Misrata, Sebha, Tobruk, Baida, and Benghazi, but it is essential that its headquarters be outside of Libya so that its Libyan members are not subject to militia intimidation and that top Western officials can easily brief it. To achieve Libyan buy-in, the main Libyan political, economic, and institutional players will initiate the creation of the IFC by requesting it and then formally participating in it — initially by allowing audits of their institutions and other transparency promoting mechanisms. If there is hesitation on behalf of specific relevant Libyan stakeholders to convene the commission, then those who are willing can promote transparency and audits of their institutions, which will build momentum for the full-blown IFC and make it more difficult for spoilers to resist.

Because optics matter, the international community will not formally request or convene the commission, but rather the Libyan semi-sovereign institutions and top political brass of the rival governments will initiate it — acknowledging that the Libyan economy is dysfunctional and needs the help of Libya’s allies to be reformed. As noted above, the author of this paper has spoken with many of the heads of Libya’s most important semi-sovereign institutions (including the NOC, Libya Post, Telecommunication, and Information Technology Company [LPTIC], CBL, and the Libyan Investment Authority [LIA]); many have assured me that were the right mechanisms in place they would call for such a commission to help them do their jobs more effectively, and that they would want to sit on the IFC, acting as both stakeholders at the commission and reform agents for it. Moreover, the institutions which possess sovereign wealth (LPTIC, CBL, LIA, and its subsidiary the Libyan Local Investment & Development Fund [LLIDF]) would be willing to fund the IFC’s activities if it brought increased Western engagement, capacity building, and protection of their institutions from militia intimidation.

This paper has made clear that an IFC is necessary to undo the corrupt incentive structures that operate at present. A genuine supra-national commission with sovereign powers to reform the institutions of the Libyan economy is needed. The 1876 Anglo-French Casse de la Dette Publique in Khedival Egypt should be a loose conceptual model (upgraded to 21st century and Libyan sensitivities, of course) of how an international commission can have both supervisory, administrative, and oversight powers over an entire economy and adjudicate claims from competing sovereign and corporate creditors. International technical experts embedded in the Libyan ministries won’t work — as, in Libya, the ministries have relatively little power and their functions are duplicated at the semi-sovereign institutional level. The process of embedding technical experts without country-specific expertise was tried and failed after the ouster of Gadhafi. The IFC will differentiate itself from previous training experiments by having Libyans and Western experts of Libya as its core components. Libya is too complicated for outsiders — other than those that have dedicated a significant portion of their professional lives — to fix it.

The IFC will start by cataloguing and auditing the Libyan economy — financial and petrol flows as well as subsidies, institutional architectures, debts to foreign companies, and the competences of various authorities. Only once the research is done and the findings promulgated will the IFC engage in the action phase of announcing and implementing reforms. It should have an equal number of voting members from Libya and from the key international and regional powers. The chairmanship should rotate among a Libyan, a Briton, an EU official, and an American.

At present only internationals have the capacity to devise the technical mechanisms needed to fix the Libyan economy in a transparent way. Mid-career officials from the foreign ministries must also staff the commission, not only technical experts. This is essentially to signal the political will from, and the direct connection to, the key policy makers back in London, Brussels, Rome, and Washington to vest the commission with the requisite political clout and power.

2. The first act of the commission will be the creation of a website — with easy access via social media and the internet — that can communicate the actions of the IFC to Libyans and worldwide in Arabic and English.

Libya has one of the highest rates of social media and Facebook penetration in the world and its citizens are highly involved in the country’s political discourse. To date this has been a point of polarization; it can equally be wielded as a point of inclusion. Libyans should be able to easily submit evidence to the commission via an online platform.

3. After the website is operational the second step of the commission should be to figure out how Libya’s economy actually works at present. It will hire academic experts and retired Libyan and international businesspeople and diplomats to create a map of Libya’s economy and its stakeholders. This work will demonstrate the formal and informal power relationships and existing laws that constitute the architecture of Libya’s economy and institutions. Its findings will be published on the web in Arabic and English for all to see.

This will facilitate domestic Libyan buy-in for the proposed reforms. Unlike in other societies, Libyans do not have a constitution, fundamental law, or monarchical charter which explains how power flows in their society. The Libyan people are educated, involved, and deeply curious. The IFC must not engage in spin or propaganda. It must simply present the facts as verified by experts. This step will create enormous goodwill for the IFC and allow for a conversation with the Libyan people in a way that previous attempts at National Dialogue have not.

4. Create a system to transparently monitor flows of refined petrol.

A GPS tagging system for petrol trucks and a special website which allows for tracking the movement of petrol across the country in real time should be established. All petrol for the Libyan domestic market can be tagged with a special compound so that it can be traced if it is smuggled abroad. The NOC has recommended this step previously.

5. Create a system to transparently monitor financial transfers into and out of the CBL and into and out of ministries. At present, only the functionaries of the rival branches of the CBL and military leaders know how the Libyan economy truly functions. Top officials in the GNA and interim Baida-based government are unaware of how various sums are spent.

Complete transparency of allocation of money to ministries and municipalities must be achieved immediately. It must also be clear what they spend it on. The results should be published online in Arabic and English. Corruption has thrived in the dark and will be progressively minimized by the light. The CBL is not solely to blame for the current state of affairs; it is a result of the Gadhafian legacy. However, without the CBL’s buy-in this plan cannot be implemented.

6. Complete an audit of Libya’s semi-sovereign economic institutions. Make the resulting document of “who has what and where” public for all Libyans.

7. Achieve buy-in from the Libyan people about what a “fair and just” Libyan economy would look like by conducing social media and telephone polls, culminating in a national conference on the topic.

8. Undertake subsidy reform, currency devaluation, then flotation. The plans should first be promulgated and then implemented.

9. The laws governing Libya’s semi-sovereign institutions should be re-written by the IFC and then implemented by those very institutions in concert with relevant government authorities.

10. New technocrats — especially young people and women — should be chosen via a meritocratic process and installed within the reformed institutions. They should receive ongoing training and communication from the IFC as they reshape the Libyan economy.

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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. He created “Libya-Analysis LLCand founded “Eye on ISIS” in Libya. He is the Senior Libya Analyst at CRCM North Africa, a German strategy firm. He served as Executive Director of the U.S.-Libya Business Association for 2 years.

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