LIBYA

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Area (sq.km)
1,759,540

Population
5,499,074

Capital
Tripoli

Currency
Libyan dinar 

Leader 
Col Mu'amar al-Qadhafi

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Update No: 013 - (30/11/04)

President Chirac pays his respects, while the Bush Administration reiterates its openness toward Libya
Having received several European leaders throughout the course of 2004, Col. Qadhafi hosted the President of France Jacques Chirac on November 26. This was the first of its kind by a French head of state since Libya obtained its independence in 1951.The meeting comes as Libya has agreed to paying compensation, in January 2004, to the victims of the UTA airliner that was shot down over Chad in 1989 killing 150 people. More recently, Libya has also agreed to German government requests for compensation of victims of a Berlin nightclub bombing in 1986. The two payments had effectively removed all barriers to full normalization of ties between Libya and the European Union. President Chirac's visit comes as France has become embroiled in a dispute in Cote d'Ivoire; a dispute, which Col. Qadhafi has challenged suggesting that it has damaged France's credibility as a mediator and partner in African affairs. Nevertheless, after the meeting, President Jacques Chirac, has "praised the strategic vision" of the leader of the Libyan Revolution, Muammar al-Qadhafi, "on the new future of Africa, being shaped within the framework of the great African Union," as the official Libyan News agency, JANA, reported. The same agency also stated that Chirac was very optimistic about Libya's role within the Maghreb and its efforts in resolving the Darfour crisis in Sudan as well as the Cote d'Ivoire. Despite the tensions caused by the UTA incident, France and Libya had maintained relatively close ties throughout the embargo that Libya endured from 1992 to 1999 in compliance with UN resolution 783. Indeed, in the mid 90's the French oil company Total was actively participating in the exploration and development of new oil fields in the Libyan desert cooperating with the Spanish Repsol. The French ambassador to Libya during that period was a friend of President Mitterrand, who spoke Arabic and understood the region very well. France also maintained a Cultural Centre, throughout the sanctions period. 
President Chirac inevitably discussed new cooperation opportunities between France and Libya. Taking cue from Great Britain and Italy, Chirac has offered to further bilateral cooperation in the energy and aviation sectors allowing French companies to invest in these key areas, which the French President described as a strategic partnership. Chirac also encouraged Libya to join the Barcelona process, which serves as a Euro-Mediterranean partnership on security, peace, and stability in countries within the Mediterranean Basin. It is expected that Canadian Prime Minister Paul Martin will also travel to Libya in December, ostensibly to endorse Colonel Qadhafi's renewed image as an ally of the West and a contributor to the 'war on terrorism'. Canada and Libya have already established diplomatic relations and throughout the 1990's embargo, many Canadians worked in Libyan oil exploration; indeed, it is believed that Canadians accounted for the largest number of Western expatriate workers in Libya. The much talked about plans for economic diversification in Libya have yet to be implemented; however, Libyan oil and gas reserves will continue to generate much interest in the West and Libya will no doubt continue to enjoy a 'darling' status attracting the leaders of the world's leading powers to pay their respects to Tripoli. 
The re-election of George w. Bush in the United States also means that Libya need not be concerned over potential policy changes in Washington over its status and progress toward the re-establishment of full diplomatic relations with the United States. American oil companies actively lobbied for normalization of US ties to Libya in 2003. The attractiveness of Libyan oil has also increased due to persisting instability in Iraq and many US based oil giants from ConocoPhillips to Amerada Hess have already signed exploration agreements with the Libyan National Oil Company NOC. Nevertheless, the road to full normalization of Libya's relationship with the West has its obstacles and uncertainties. Last month, the spectre of Libya's ties to terrorism was suggested again, by repeated Saudi accusations over the direct involvement of the Libyan leader in the assassination attempt of Crown Prince Abdullah. Moreover, the European Union is still very concerned over the fate of five Bulgarian nurses, who have been given death sentences for allegedly infecting babies in a Benghazi hospital ward with AIDS. A Libyan court sentenced Kristiana Valcheva, Nasya Nenova, Valja Cherveniashka, Valentina Siropulo and Snezhana Dimitrova to death by firing squad on May 6 after finding them guilty in the AIDS trial that lingered for more than five years.
European Commission President Jose Manuel Durao Barroso has indicated that how Libya will proceed in this matter, is important for the overall relations between the European Union and Libya. Barroso's statement coincided with the visit of French President Jacques Chirac to Libya, which is said to have included talks over the fate of five Bulgarian medics sentenced to death.
As if reiterating the newly found friendship between the Bush administration and Libya Deputy chairman of the Foreign Relations Committee, Tom Lantos, also met Libyan leader Muammar al-Qadhafi in Tripoli in November. He declared that American- Libyan diplomatic relations will be resumed either in May or June 2005 and had already inspected sites in Tripoli upon which to build headquarters for the American embassy. Lantos noted that: "Libya wishes to build a future built on peace and cooperation. And we are happy with the Libyan cooperation to fight terrorism…[and that] Libya has a lot to give in the course of its mission in this regard." More significantly, perhaps, Lantos was keen to note that the turn for the better in American-Libyan relations is not merely a policy of the Bush administration. Indeed, Lantos said that this policy is based on "the strong support from the Congress, and therefore whether John Kerry or George Bush had won the elections, the steps and measures with Libya are continuous and are supported by the two political parties and the Congress." Lantos also offered comments suggesting American interest in Libya has a very wide scope extending to the economic and cultural spheres. He expressed the hope that American tourists might now be able to enjoy Libya's historical, tourism and desert components. Lantos' visit coincided with a measure by the US Congress on 20 November, which lifted a ban on U.S. Export-Import Bank loans to Libya, a move that could help American companies by reducing their risk exposure. The bill provides for "direct loans, credits, insurance and guarantees of the Export-Import Bank or its agents to be made available for or in Libya … if the president determines that to do so is important to the national security interest of the United States."

Market Reforms?
For its part, Libya has taken some official steps to implement the market reforms, which Prime Minister Shukry Ghanem had promised at the start of his term in July 2003. The Libyan government has decided to tackle one of the principal obstacles to what the IMF and World Bank see as impediments to a genuine market economy: subsidies. Therefore, Libya will lift subsidies from gasoline, electricity and supply commodities, which currently cost $ 5 billion annually. The commodities covered by subsidies are sugar, tea, oil, wheat and rice and alone account for $ 2 billion. The issue of subsidies is a very contentious one in many Arab countries. In a first attempt to liberalize the economy in the late 80's, the Libyan government approved measures to reduce subsidies on basic goods only to face the rise of a dangerous resistance. It was, in fact, in that period that some of the most violent protests veiled in Islamic terms erupted in Libya, especially in the region of Benghazi. The experience is not unique to Libya. In 1979, also under the guise of opening the economy for to liberalization, President Sadat of Egypt lifted subsidies on bread and rice only to face some of the most violent riots in the post war history of Egypt. 
The subsidies removal will be a test for the new policies of the Libyan government. So far, many Libyans have welcomed the renewed links to the outside world and the opportunity to grow economically beyond the limits imposed by the former socialistic policies inspired by Gadhafi's Green Book. The subsidies will test those that have yet to join take advantage of the free-market opportunities. Namely, the vast numbers of government employees, who endured stagnant wages and a highly reduced purchasing power of the Libyan Dinar during the period of the UN imposed embargo. While avoiding talk of potential furore over the lifting of subsidies, Ghanem stressed that this policy will coincide with rising wages and reducing taxes and exempting bank loans from interest. Moreover, salaries of Libyans would be adjusted to match those of citizens of other oil rich countries. Therefore, the subsidies have been from commodities directly to wages. Ghanem expects that Libya will be able to double its oil production to three million barrels daily in 2010. Moreover, Ghanem also addressed the fact that there are over 270,000 unemployed Libyans, who will benefit from programs aiming to replace foreign workers with Libyans and by legally requiring foreign companies to hire Libyans for jobs normally performed by foreigners. This will be a difficult task, as Libya has for many years tried to raise the standards and training of its citizens through UNDP managed programs in industrial and vocational training with little benefit. Foreign workers are currently necessary from the baking of bread to the running of the electricity generating stations. The lifting of subsidies is therefore a daring move, whose effectiveness and durability entitle Libya-watchers to remain sceptical. 

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