Watching Libya May 26, 2011

Our correspondent – let’s call him Mo – landed at Benina International Airport, less than 20 km east of Benghazi on Thursday, May 19, on a brand new C130J-30 Super Hercules of the Qatar Emiri Air Force. The two 3,576 runways at Benina, a historic airport used by US B-24 Liberator bombers in the Second World War – when it was known as Soluch Airfield – were reported to have been “destroyed” during the outbreak of violence in February of this year. One or both are, however, now evidently in a good enough state of repair to take aircraft at least as large as a Hercules. This particular aircraft is a frequent visitor, ferrying rather more personnel than cargo a couple of times a week.

(For background on cooperation between Qatar and the TNC see Watching Libya April 5, 2011, below.)

“The first thing you notice,” he writes, “apart from what is left of destroyed Gheddafi billboards, which were omnipresent throughout Libya before the uprising and still stubbornly stick out in the landscape, is the attitude of ordinary people everywhere.”   Contrasted with the proverbial sulkiness and the “suspicious and short-tempered attitude” of the people of Benghazi under the regime, now their very body-language has been transformed.  “One senses a remarkable change just from their facial expression, you are now greeted throughout with a warm smile and people are much more patient with each other and with strangers than before.”

Mo is also struck with how important the flag of the republic has become for Libyans that have rejected the regime. It has clearly become a symbol of unity and of resistance, of hope and determination. “The white crescent-and-star on the horizontal red, black and green bands – the flag adopted in February by the National Transitional Council (TNC) of the Libyan Republic – is literally everywhere.  It is sold like the memorabilia of a World Cup winning team.” He observes, with palpable emotion, that it “is painted on walls, on faces, on arms and hands, it is drawn, it is worn and it is raised in the most unlikely places.”

“But the most inspiring sight for me has been the square in front of the courthouse, where freedom tea is served from dusk till dawn. The square is packed all day long but the activities start after the midday prayer, with cleaning of the open-air tents that have been erected to represent everything from charity organization, NGOs, freedom fighter representative groups from all over the country and even banks. The middle of the square is an open area where people congregate and listen to speakers addressing them from on top of a large stage, on the back of which a screen has been erected on which Al Jazeera is projected whenever there is anything of  significance regarding Libya.”

Once the excitement and the emotion subside, however, one realises that “although when you walk down the streets you get a sense of normality, life is far from normal in Benghazi.” To start with, “schools have yet to restart lessons, as they are struggling to change the Gheddafi influenced syllabus.” The public sector is at a standstill with the exception of essential services, utilities and heath care. “As the majority Benghazi’s gainfully employed are public sector employees,” Mo notes, “most of these are presently not working, although they continue to draw their wages and salaries regardless of whether they are working or not.”

The most severely affected are private sector employees, “especially those employed with firms that have traditionally relied on public sector contracts such as those working on the numerous housing and infrastructure projects and those providing various services to the public sector.” It is those that never depended on the public sector that get on with their business, “busily providing goods that they miraculously seem to obtain”.

But the real miracle,” Mo argues, “are public finances.” This is what he reports: “When Dr. Ali Tarhouni first arrived from the US and was appointed by the National Transitional Council (NTC aka TNC) as the interim Head of Finance (effectively the TNC’s minister of finance and oil) he went looking for the cash. After having had to rob the Central Bank of Libya's Benghazi branch, the treasury was funded with Libyan Dinars (LD) 300 million, approximately  Euros  170 million (at the official rate of Euro 1 = LD 1.75).”

(For background on Ali Tarhouni, see Watching Libya March 24, 2011, below).

“Luckily there was about as much in crude between the pipelines and storage facilities in Tobruk , which was used to barter for fuel. The cash was spent mostly on salaries. As one would expect, with hard currency in high demand, it soon disappeared from banks. Merchants were quick to withdraw their deposits and soon a liquidity shortage ensued and has forced caps on cash withdrawals from banks.”

Miraculous it might be, but Mo concludes that life goes on in Benghazi. “Electricity, water, food, fuel, phones are all available and there is no panic. Contrary to expectations prices have not soared, though there have been some price increases for a few perishables and consumer goods. This has been mainly due to black market currency rates which have devalued the Libyan Dinar by around 40%. Black market rates in Benghazi are Euro 1= LD 2.3 compared to Tripoli where it is closer to Euro 1 = LD 3. In Benghazi, you can still buy a 'fasoolya' (beans) sandwich for 25 Libyan cents.”

There are, nevertheless, a number of puzzling issues. How imported goods are purchased and how they arrive, is a case in point. “Most shipping lines have suspended service to Benghazi and banks, though not all sanctioned, are not opening letters of credit and are unable to fund their correspondent accounts. Though the revolutionary spirit is certainly contributing to the confidence, things cannot go on for much longer like this.”

Returning to the issue of public finances, Mo writes: “Efforts to finance the fledgling TLC are hampered by legal issues resulting from US Executive Order 13566 and EU Council Regulation (204/2011) and subsequent EU implementation decisions (137, 156,178, 204, 360). The main sticking point seems to be that until now the TNC has been recognized de facto as the legitimate government of Libya but not de jure. The latter is required if the TNC is to be considered as the rightful owner of the frozen assets or as having control of the oil reserves.”

“Without de jure recognition, the TNC cannot enter into financial arrangements such as financing using forward oil contracts or other similar structures. This is where the Temporary Financial Mechanism (TFM) comes in. It is meant to enable the TNC to effect payments for general governance, salaries and the import of humanitarian goods and commodities. The TFM operates as a fund and will be entrusted to the Central Bank of Qatar. The agreement stipulates that a commercial Qatari bank account will hold funds contributed by States either as donations or as financing arrangements to be governed by agreed terms and conditions.”

Mo reports that several creative initiatives are underway to avoid economic collapse. “Although financing backed by frozen assets is legally out of the question, it may work outside of the US and EU, especially within a three party structure involving a guarantee by a company to a bank that would facilitate the financing. It is understood that the US is attempting to pass legislation that would at least grant access to the liquid assets in the US. These are estimated at $ 180 million. This initiative may set a precedent for the future transfer or unfreezing of the assets.”

Other initiatives are being tried out in Europe, notably in Italy and France. Turkey has recently expressed its desire to help and it may not face the same complex obstacles such as confront the US and EU governments. Donations and lines of credit facilitated through Arab countries may serve as the immediate-term solution.

(Read more about the Temporary Financial Mechanism (TFM) and other funding initiatives at Watching Libya May 4, 2011 and Watching Libya May 7/8, 2011 below.)

Regarding the possibility of an official transfer of the head office of the Central Bank of Libya to Benghazi, Mo argues that although this “would not be impossible, it would  be legally extremely complex”. “The other alternative,” he informs us, is to “restart oil production in Messla and Sarir fields, which connect to the Tobruk refinery. This would partially cover local requirements of refined products and generate revenue, and is perhaps the easiest fix, but it does not come without its technical and security hurdles.”

(For background on export of oil from TNC controlled territory, specifically from the Marsa El Hariga terminal near Tobruk, see Watching Libya April 5, 2011, Watching Libya April 7, 2011, Watching Libya April 6, 2011 and Watching Libya April 13, 2011 below. About the location of eastern oil fields in relation to the coastal hubs of the Gulf of Sirte and the Cyrenaica, read more in Watching Libya April 2/3, 2011 and Watching Libya March 11, 2011 below.)