Tough reform ahead for oil-rich country just released from Gadhafi


FRANKFURT (AP) ― Europe and the United States are preparing to unfreeze billions in frozen Libyan assets that will be crucial to supporting the country once Moammar Gadhafi’s regime collapses, but the North African nation’s recovery will be neither easy nor rapid.

Its valuable oil sector could take a year to restart and the economy badly needs reforms after being moved for decades by the whims of Gadhafi, whose personal rule was guided by a quirky socialist ideology, and by his cronies.

As the battle raged on in the capital, Tripoli, the country’s rebel leaders eyed the tens of billions of dollars in Libyan money that governments around the world froze during the early days of the uprising.

The money is the nation’s fortune and is expected to provide a capital cushion that other Middle Eastern countries that have deposed rulers this year, such as Egypt, don’t have.

The European Union said Tuesday it was preparing to unfreeze the Libyan money once the United Nations gives its approval. President Barack Obama indicated on Monday that he was ready to do the same.

“Even if it takes time to recover all of these assets, a small amount will help the interim government in the near term,” Said Hirsh, Mideast economist for the London-based Capital Economics, said in a research note. He estimated Libya’s frozen assets at around $110 billion, about 110 percent of the country’s GDP.

“It is possible that political stability can be quickly restored and reconstruction efforts can commence.”

The U.N.’s approval remains crucial to both the EU and U.S. decisions to release the funds. Germany’s foreign minister Guido Westerwelle called Tuesday for the U.N. Security Council to pass “as soon as possible” a new resolution that would unblock the frozen assets.

The U.S. has $37 billion in frozen Libyan money, while Germany blocked some 7.3 billion euros ($10.5 billion). Britain has frozen about 12 billion pounds ($20 billion) and the Netherlands 3 billion euros. The governments of Austria, Portugal and Spain have not revealed the size of assets seized in their countries.

While they wait for the green light from the UN, Germany and the Netherlands each agreed to lend the Libyan rebels 100 million euros ($144 million) to fund immediate rebuilding and humanitarian needs. The money will then be deducted from the assets they unfreeze.

But while Libya’s transition government will be in the enviable position of having billions in cash and no debt, the economy’s fundamental health is poor and the outlook uncertain.

Almut Moeller, an expert on European Union foreign policy at the German Council on Foreign Relations, cautioned that a functioning government and political settlement were a condition for economic revival ― and that Europe may find it has limited influence in that regard, as it has found after the revolutions in Tunisia and Egypt.

It could in theory provide technical advice on constructing courts and constitutions, but only if the Libyans ask for it.

“The country of course can only thrive with a flourishing economy, and I think in the case of Libya it’s easier than in Egypt, where there is this mass of young people not participating in the economy,” said Moeller.

“For any business to return, a political settlement and a kind of calming down of the situation need to be achieved,” said Moeller. She said there were questions, however, “to what extent Western powers can be helpful with this.”

Working in Libya’s favor is that many members of the old regime are part of the National Transitional Council, the rebel’s government based in the east of the country. Their presence in the NTC means that economic and political institutions could begin to function sooner than they did in Iraq after the 2003 U.S.-led invasion which led to the removal of Saddam Hussein’s Baath Party elite.

Prospects for re-starting oil production, most of which has been shut down by the fighting, are uncertain. Germany’s BASF AG subsidiary Wintershall, which in February shut down operations that produced up to 100,000 barrels of oil per day, was cautious on when it might resume them.

“At the moment, it is too early to say when, how and under what conditions production in Libya can be resumed,” spokesman Stefan Leunig told news agency dapd.

He said that, in principle, production could be resumed “within a few weeks” but ramping it back up depends on the state of export infrastructure and a stable security situation.

Italian oil and gas producer Eni, the biggest foreign operator in Libya, predicted it could take a year before oil output is back to normal.

The country, which sits atop Africa’s largest proven reserves of crude, has for decades relied on oil revenues to fuel growth.

Because of this, European investment in non-oil areas will prove important. Such investment increased after the last sanctions imposed on Libya for its involvement in terrorism were lifted in 2006. Petrochemicals, iron and steel production, and construction have all grown since then.

The country’s political system and the private sector will have to be strong enough to receive this foreign investment, however, and everything suggests they are not.

Institutions common in other countries, and which are vital to economic growth, were largely missing under Gadhafi’s so-called Jamahiriya system ― best described as rule by the masses. The Brother Leader, as he was called for lack of an official title, had once moved to disband the government and distribute oil wealth directly to the people because he was unhappy with what he said was endemic corruption.

The private sector, which began to develop after the sanctions were lifted, is in fact a case study in crony capitalism, with businessmen’s success largely hinging on links to Gadhafi or others within his regime.

Libya ranked 146th out of 178 countries on the anti-corruption group Transparency International’s corruption perception index, tied with Cameroon, Ivory Coast, Haiti, Iran, Nepal, Paraguay and Yemen.

The country’s next government will face the daunting task of trying to reform the government, but also ensure the security that will be key for drawing back in the foreign firms who pulled their employees out following the outbreak of the civil war.

“The first thing they have to do is to make sure that the basic infrastructure is working,” said John Hamilton, a London-based Libya expert with Cross-border Information and a contributing editor to Africa Energy. “They need to make sure they don’t run out of electricity in the next days and weeks, that they’ve got the fuel people need to move around, that the hospitals will function.”

“If they do that, then they’ll start getting the revenue they need to move forward,” said Hamilton. “But it’s going to be a massive challenge.”