Qaddafi's Quagmire

By John Haldane

In September, Libya celebrated the 16th anniversary of its revolution with night-time parades, fireworks displays, and chanting crowds repeating slogans blaring from loudspeakers. But amid the public merriment the Libyan man-on-the-street privately had little to cheer about. Declining oil revenues over the past few years have brought economic hardships and necessitated large cuts in vital development programs. Expulsion of more than 75,000 Egyptian, Syrian, Tunisian and other foreign workers by the Qaddafi regime has decimated the skilled and semi-skilled labor force, with little likelihood that enough qualified Libyans can be found as replacements. And the political backlash that followed the expulsion of 30,000 Tunisian workers and their families have increased the unpopularity and vulnerability of the Qaddafi regime.

In Libya's peak year, 1980, it enjoyed oil revenues of $22 billion. Experts now believe that its oil income is only half that amount. Total foreign currency reserves were $3.5 billion early this year, down 20 percent from 1984, and far below the 1980 high of $13.1 billion. Economists estimate that Libya's debt burden, including military debts, to foreign countries and companies has skyrocketed to the $8 billion level over the past year. The foreign businessmen who flocked to Libya during the boom days now often have to wait months for payments.

Given the continuing world oil glut, Libya cannot expect to do better over the next few years. Oil and gas exports have traditionally accounted for over 99 percent of all Libyan export revenue. With no other income available to offset declining oil revenues, the Qaddafi regime in the years ahead will find itself hard pressed not only to fund its development budget, but even to meet the demands of its ordinary operating budget.

The Outcast Economy

To make matters worse, the United States has imposed sanctions on most American companies doing business in Libya, and banned U.S. purchases of Libyan oil and the sale of American technology to Libya. U.S. exports to Libya have dropped from $1.813 billion in 1981 to $200 million in 1984. Libyan exports to the U.S. plummeted from $5.2 billion in 1981 to only $9 million in 1984.

These U.S. sanctions have had serious repercussions for a Libyan economy grown dependent upon U.S. markets for its oil exports and on American firms for the supply of technology and goods.

According to John Damis (Current History, May 1985): "U.S. relations with Libya have been unfriendly for at least five years, and, short of a change of government in Tripoli, are unlikely to improve dramatically. The source of friction has little to do with what happens inside Libya, where American businessmen and their families are treated very well. The problems stem, in Washington's eyes, from the destructive and destabilizing nature of Qaddafi’s actions on the international scene."

Other countries are also closely following Qaddafi's foreign adventures. One Western diplomat in Tripoli reports: "Libyan oil income has been reduced dramatically in the last two or three years, suggesting that the maneuvering space Qaddafi has to support liberation movements world-wide has been reduced just as dramatically." Thus it appears that Qaddafi's efforts to undermine other Arab and African states by supporting coups, funding and training opposition political parties and guerrilla groups will have to diminish, if not stop completely.

In October, Qaddafi, visiting Moscow for the first time in four years, concluded several economic and military pacts with the Soviets, who also agreed to implement a number of long-term economic, trade and technical cooperation programs. It is unlikely, however, that these arrangements will translate into any immediate economic benefits, given Moscow's growing policy differences with the Libyan leader. The Soviet Union protested Qaddafi's shipments of Soviet-made ground-to-ground missiles and other military hardware to Iran for use against Iraq, once a close Soviet ally. The Libyans are already up to their ears in debt to the Soviets for weapons, owing an estimated $4-5 billion on the current account, with purchases of new hardware likely to add about $1 billion per year more in the future.

The Libyans have resorted to oil discounting and barter to boost revenues and settle trade debts to countries like Italy and Turkey. Experts think the Libyans may be bartering 300,000 to 400,000 barrels of crude daily. Libya's $8 billion foreign debt has left it short on the foreign exchange needed to buy spare parts and equipment and forced a ban on imported consumer durables. As in other developing nations, the new foreign exchange restrictions have given birth to a lucrative black market in which enterprising merchants quietly deal in both foreign currencies and imported goods.

Domestic Unrest Grows in Wake of Economic Slide

Libya is still far from facing imminent financial ruin. But Libyans are growing increasingly restive as they watch foreign debts and military purchases consume most of Libya's income. Qaddafi may soon have to choose between cutting spending on his foreign policy goals of destabilization and terrorism or on domestic consumption and production.

Cash shortages have delayed major development schemes in the heavy industry sector. The biggest project in the $62.5 billion 1981-85 development plan, an integrated steel works at the coastal town of Misrata slated to go on line in mid-1985, is already a year overdue. The government's current financial dilemma makes it almost certain that the new 1986-90 development plan due out soon will be more of a "wish list" than a series of planned programs anchored in funds sufficient to insure an orderly award of contracts and subsequent implementation.

The drop in oil income has reawakened the Libyan government's flagging interest in agricultural development projects. Local crops provide only a tiny fraction of Libyans' caloric intake, necessitating the importation of about 75 percent of the nation's food requirements. Problems may remain endemic in this sector, however, because many Libyans have abandoned agriculture for easier and more lucrative employment in the cities. Furthermore, marketing bottlenecks have lowered the efficiency of the agricultural sector, particularly since the Qaddafi regime abolished private retail shops and replaced them with a network of so-called "peoples' supermarkets."

Qaddafi's foreign and domestic policies have wrecked havoc on Libya's relations with Egypt, Tunisia, Algeria and Syria. Though his erratic foreign policy moves may not yet have seriously damaged his popularity at home, a rapid drop in the standard of living could tempt his military forces to increase their efforts to replace him with a more moderate leader who would concentrate on getting Libya's financial house in order. In the past few months rumors have abounded of foiled assassination and coup attempts involving army officers. Many diplomats in Tripoli interpreted the absence of the usual military parade at the annual anniversary celebration as a sign of tension between Qaddafi and his military chiefs.

Should growing domestic pressures topple the flamboyant strongman, Libya without Qaddafi would certainly assume a lower profile on the international scene, and most of the Arabs would greet the change with undisguised relief.

John Haldane is a specialist in Middle East affairs who has served as a foreign service officer in Baghdad, Beirut and Cairo, and as an international economist in the Departments of Commerce and Treasury.