Jason Pack & Stefano Marcuzzi
Part 2) … Continues
On Feb. 5, 2023, the regional spokesman for the U.S. Department of State, Samuel Warburg, said that the U.S.’s current priority in Libya is to “achieve Libyan aspirations to have a transparent management of oil revenues.”
While the U.S. undoubtedly has an interest in securing the transparent management of oil revenues and budgets in Libya — both as a way to secure greater stability in Libya and to ensure Russia is not benefitting from the sector — there is little to suggest that there has been any major shift in approach or a significant increase in political capital being thrown at it by Washington.
As a result, there is unlikely to be much progress towards establishing such a mechanism, especially while the broader political process remains so opaque, and the U.S. is only minimally involved on the Libya file at present.
As such, Warburg’s statement can be interpreted as showing that the U.S. will be confining itself to the margins of the Libyan elections debate and allowing the U.N. to call the shots and generate political will on that file.
Opponents of the American approach have successfully articulated a narrative that “the exclusion of GNS representatives from the proposed LSCO raised doubts in Cyrenaica that the LSCO could satisfy the grievances of that region.”
The NOC decision to transfer $8 billion of oil revenues from its Libyan Foreign Bank account to the CBL in mid-April, in return for the GNU agreeing to disburse 34 billion LYD in emergency funding for the oil sector, triggered further accusations that the NOC and CBL were politicized in favor of the GNU.
This, however, is itself a biased way of looking at the problem, inasmuch as the CBL and NOC were working with the legitimate government to source funding for the energy sector, albeit through non-transparent means. They have mostly done what they needed to do to keep oil flowing, while other actors have sought to turn the oil off to grab headlines and engage in blackmail.
In early July 2022, HoR Speaker Aguila Saleh unilaterally attempted to appoint Hibri as the “head” of the whole CBL, while conflict also resumed between the bank’s two branches over fund allocations, with the eastern CBL warning that it would be forced to resume printing its own Libyan dinars if Tripoli does not provide it with further liquidity. These events fueled greater mutual mistrust and recriminations.
On July 17, Hibri issued an official communication — co-signed by the chairman of the Administrative Control Authority (ACA) appointed by the HoR, Abdussalam al-Hassi, and the head of the AB in al-Bayda, Omar Abd Rabbu — which rejected the U.S.-proposed financial mechanism, deeming it “disrespectful of Libya’s sovereignty.”
Despite repeated attempts by Norland to revitalize talks throughout August and September, efforts to establish a more neutral oversight of the management of Libyan revenues and reunify the banking system appear to have become irrevocably bogged down, as other internationals have not supported the process, while inside Libya each side has scrambled to blame the other and control the narrative.
This is an exact repeat of what happened over the slated December 2021 elections: No conflict actor wished to be the first to announce publicly that elections would not be happening and each sought to spin the failure as a result of his opponents’ actions. Myriad conspiracy theories abound on Libyan Facebook pages about the role of the CBL and its leadership in prolonging and benefiting from the ongoing political conflict and bifurcation of institutions.
The narrative war of “rival banks” forces internationals to meet with Hibri and to treat him as a major player and almost a co-equal to Kabir when he clearly is not. Similar dynamics played out with Hifter from 2016-19 when he leveraged official meetings with European officials for increased international standing, which he later used to further destabilize Libya.
In late November 2022, the HoR decided to sack Hibri and appoint Marai al-Barassi to replace him, both as the head of the eastern CBL and as deputy governor of the whole Central Bank. Barassi is a banker who has held many senior posts in the past, including chairman of al-Wahda Bank in Derna, and is considered very close to Gen. Hifter’s clan of supporters. He stands accused of funneling funds to Saddam Hifter.
The scandal that is said to have brought Hibri down does not so much relate to his plans to revalue the dinar or the illicit Russian-printed dinars seized in Malta with his signature on them. His opponents say it has to do with embezzling funds from his role in the Derna and Benghazi Reconstruction Committee. Hibri says that it has to do with his failure to transfer to the HoR the 2022 budget that it passed for the rivalBashagha government. This latter version is more credible, especially as no evidence has emerged of embezzlement from Reconstruction Committee funds.
Simultaneously to Hibri’s ousting, rumors surfaced on social media that CBL board members Mohammed al-Mukhtar and Abdul Rahman Habil submitted their resignations to the office of the speaker of the HoR. This step was engineered by opponents of Kabir as it could legally lead to the dissolution of the CBL board, which currently lacks a quorum.
Wishing to take control of the narrative, the CBL has responded by making more financial disclosures and publishing more information about annual expenditures and the letters of credit that it issues. It is also increasingly posting about its activities online and on Facebook and keeping the Libyan public up-to-date about issues like gold reserves and public sector salaries.
There are some genuinely useful nuggets released in this manner; however, much of the more interesting information is published only in Arabic and in formats that are obscure and hard to cross-check or verify. That said, disclosures like the 2022 expenditure report released on Jan. 4, 2023, do appear to spark constructive debate about public sector inefficiency on Libya social media.
They also allow the CBL to frame their new disclosures as an “important transparency initiative,” even though they actually demonstrate how untransparent Libya’s public expenditures really are and that a significant expansion in opaque public spending happened from 2021 to 2022.
This current impasse is the logical conclusion of the Enduring Disorder playing out against the CBL. At present, the governor fears that any of his actions will be criticized as illegal by Libya’s AB or legal supervisory bodies. In the first week of January 2023, the ACA did just that, as it requested a freeze of all banking sector transactions until the HoR approved a budget for the 2023 fiscal year.
As such, there are optics challenges from partisan bodies like the ACA for CBL spending on anything beyond salaries. Despite these challenges, at the time of writing it seems that normal approval procedures for letters of credit are continuing and that expenditures in 2023 are set to increase to new heights.
Towards the end of January, it was revealed that HoR Speaker Aguila Saleh had issued a decision requesting Kabir to authorize the disbursement of a 6 billion LYD loan to the GNS for the LNA General Command. However, it seems highly unlikely that Kabir will agree to disburse such a loan to eastern Libya outside of the CBL reunification process, even as part of a broader economic deal.
The Libyan banking sector is clearly beset by myriad paradoxes. The private banking sector has grown ten-fold in the last five years while the public banking sector appears to be stymied and sclerotic, yet its transparency about spending has an optic of improving, while actual opaque public spending is occurring at unprecedented levels.
The forces of disorder and corruption win so long as there is a brutal narrative war over who gets to control Libya’s economy. At the time of publication, progress on the proposed reunification of the CBL has stalled and there is no movement over appointing new board members.
The emergence of a renewed governance divide and ongoing disputes over the state budget serve as indications that the eastern authorities will seek to generate and spend funds directly. It is evident that both lending and the printing of banknotes have resumed in the east; however, the degree to which they are in circulation remains unknown.
The fact that Hibri was removed and replaced with a bank executive known for his closeness to Saddam Hifter indicates that the funding taps are about to be turned back on and that illicit money is likely to start flowing into eastern coffers.
Rumors and misinformation campaigns alongside genuine personnel reshuffling will only contribute to further division and polarization over the role of the CBL. Kabir has previously headed off more threatening challenges and he is truly indispensable to various international actors, like the United States Treasury Department and the IMF, which seek to prevent the collapse of the entire Libyan financial system and to guarantee that they have legitimate interlocutors with whom to parley.
Hence, the grand sum totality of these moves does not necessarily weaken Kabir’s position, even as they perilously weaken the entire banking sector. At the time of writing, the only man recognized by Kabir as his deputy (Hibri) has now been dismissed and Kabir lacks working relationships with his other board members and deputies.
Even his relationship with his erstwhile protégé, Tarik Youssef, is said to have frayed. Amidst this uncertainty over Hibri’s alleged corruption regarding the reconstruction of Derna and Benghazi, it is possible that his two pledges from 2020 will come undone — namely for the eastern CBL and LNA to stop taking unauthorized loans from commercial banks and stop importing Russian-printed banknotes.
In short, a media war continues over control of Libya’s banking sector that has spilled over into a political battle tangential to the battle over elections and a new interim government. Western Libyan “official” institutions have continued to control Libya’s finances in a non-transparent way, while eastern “parallel” institutions have claimed that they have a right to be included in decision-making processes as if they were representatives of legitimate national institutions, which they are not.
This dynamic has allowed eastern Libyan power players like the Hifter clan and Aguila Saleh to manipulate eastern CBL personnel and procedures to extract funds. Meanwhile, the narrative war over control of the bank extends to how the “reunification process” is being presented to the world. Negotiations take place behind closed doors and then the various sides of the conflict provide “spin” over who is doing what and who is to blame for the lack of progress.
This situation has come therefore to increasingly mirror the dysfunction in Libya’s institutions prior to the Skhirat Agreement establishing the GNA — and in fact, it illustrates the dynamics of the Enduring Disorder writ large.
Although cooperation would be in all sides’ best interests, foreign meddling, a lack of international and domestic consensus, and a desire to score points in the media by blaming one’s opponents for a conspiracy have inhibited all progress on reunification.
Jason Pack is a former non-resident scholar at MEI, author of Libya and the Global Enduring Disorder, and the president of LibyaAnalysis LLC. He is the Director of the NATO & THE GLOBAL ENDURING DISORDER Project and a Senior Analyst for Emerging Challenges at the NATO Defense College Foundation.
Stefano Marcuzzi is a Research Fellow at the Center for Higher Defense Studies (CASD), Rome, a Senior Analyst at Libya Analysis LLC, an Adjunct Fellow at University College Dublin (UCD) and Boston University (BU), and an Emerging Challenges Analyst at the NATO Defense College Foundation (NDFC), Rome. He is the author of The EU, NATO and the Libya Conflict. Anatomy of a Failure.