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Libya's rebels have political support, now they need cash

Political support is welcome, but Libya's rebels need the cash their allies have promised

WHEN the US led more than 30 countries in recognising the National Transitional Council (NTC) as Libya's sole legitimate government on 15 July, everyone assumed it was payday for the rebels.

It was certainly a diplomatic coup. The UK, increasingly the most committed of the Western nations backing the uprising, followed it up on 27 July by expelling Libya's diplomats from the country and asking the NTC to begin staffing the London embassy. That was a unique shift in UK policy, which until then had insisted it recognised "states, not governments".

But what of the money? The NTC knows it has political backing from Western nations. But it doesn't have cash to cover the salaries it has promised to pay in the east; to keep hospitals running; buy weapons; or rebuild infrastructure destroyed during the war.

Ali Tarhouni, the NTC's finance minister, reckons his government needs a minimum of $3 billion dollars to keep the rebel economy afloat for the next six months. The more land claimed by the uprising, the bigger the need.

No flow of finance

Yet for all the promises from Western and other friendly governments, the expected flow of funds has been more like a trickle.

Qatar, per head the world's wealthiest nation, has been the most generous, providing an estimated $100 million to the rebels in Benghazi, although its munificence has been more visible in fuel and weapons shipments. Kuwait has pledged $177 million, but little has reached the rebels, said a source in the UK foreign ministry. France and Italy have promised about $1 billion between them. But that, too, is yet to register on the rebels' balance sheet.

No-one has explained why money belonging to Agoco, a subsidiary of regime-controlled National Oil Company, can be legitimately freed but other funds cannot

The problem is the funds Muammar Qadhafi and his clan squirreled away in foreign bank accounts and assets. Recognition of the NTC as Libya's government was a political ploy to give the rebels access to these assets, which foreign governments froze once the UN passed its security resolution authorising Nato's military campaign.

But to the frustration of the NTC and foreign governments, the ploy hasn't yet worked and remains under a shroud of confusion. UK foreign secretary William Hague said on 27 July his government would unfreeze £91 million ($149 million) of assets belonging to Arabian Gulf Oil (Agoco). But compared with more than $120 billion of foreign Qadhafi-government assets – and, it is thought, much more in privately named accounts – the UK's move is minor. And no-one has explained why money belonging to Agoco, a subsidiary of regime-controlled National Oil Company, can be legitimately freed but other funds cannot.

Draconian sanctions

At the heart of the issue are the draconian sanctions imposed on Libya, said Harriet Territt, of counsel at global law firm Jones Day. Stiff measures may have been politically useful, but near-blanket UN and US bans on dealing with Libya have also brought the law down on the rebels. Until the UN, the bedrock of other nations' sanctions, recognises the NTC as Libya's sole government, unfreezing the assets could be illegal.

For the regime's overseas vehicles, such as the $70 billion Libyan Investment Authority sovereign-wealth fund, there are other problems. Many of its worldwide investments are not cash: liquidating its real-estate portfolio would be tricky. Of $30 billion thought to have been invested in the US, only about $3.5 billion is liquid.

The least difficult option may be to use frozen regime funds as collateral against loans from friendly governments – an idea the NTC's Tarhouni broached in an interview with Petroleum Economist.

The least difficult option may be to use frozen regime funds as collateral against loans from friendly governments

Western governments are studying this, but the legal implications are daunting. A UK diplomat said that for all his country's political will, its lawyers were nervous about action the Libyan government claims would be tantamount to piracy.

Territt said that, in the end, such a move would rely on a government taking the risk that such collateral never materialised. Provided it had evidence that any money released was not directly under the control of a sanctioned entity and would not be used to assist Qadhafi's regime, it could be permitted under the existing sanctions regime. Hague's unfreezing of Agoco's cash may fit that category.

Uprising under threat

But while the lawyers in London and Paris debate, the NTC's cash problem is growing severe and without a quick injection of funds the uprising faces threats. The NTC pledged early on to pay the salaries of government employees in areas it controlled, but it has struggled to keep its word. One NTC source said salaries have fallen from LD2,000 ($1,644) a month to LD750. Many state-employed workers haven't been paid since March, said two other sources.

Oil production would solve some of this. Agoco's Sarir and Misla fields are ready to begin pumping – but the firm is keeping quiet about plans to resume exports through Tobruk. A cargo of crude reportedly left Zuetina last week, but the oil came out of storage, said a source. A Western diplomat said private-sector security companies had gone to the fields to help secure them against attacks, but until production resumes, the rebels have nothing to sell.

The straitened times are being felt in Benghazi, a relative oasis of calm in the past three months. Although gasoline supplies remain abundant, electricity is regularly rationed – there is no money to replaced damaged power facilities in Zuetina – and the currency is weakening. Months ago, it traded at LD1.30 per dollar, but now sits at around LD1.60.

Desperate measures

This has forced the NTC to take desperate measures. As the government did in Tripoli, the NTC may allow old notes that were to be destroyed to re-enter circulation. A source said almost $1 billion of new notes had been printed in the UK before the war – and should be released to the NTC.

But the biggest problems are outside the rebel capital. Simmering disquiet from Misrata's rebels, who suffered under siege for weeks, is a worry. "Most of the town is rubble and there is a very clear Misrata-Benghazi split," said a source. "The main issue is the lack of direct funding. The NTC is not delivering on bread-and-butter issues, which is having a knock-on effect on its credibility and cohesion."

The biggest problems are outside the rebel capital. Simmering disquiet from Misrata's rebels, who suffered under siege for weeks, is a worry

Meanwhile, what Western diplomats have been referring to as a ratchet on Qadhafi's regime – sanctions, a fuel embargo on the west, rebel military gains – has not yet inspired uprisings in Tripoli, Zlitan and other towns. The NTC, said one analyst, has been overpromising and under-delivering. Even Brega, which the rebels claimed to have liberated, remains a frontline.

On top of Western governments' growing weariness with a costly military campaign, all of this helps to explain the sudden rush to end the war diplomatically.

NTC leader Mustafa Abdel Jalil now says Qadhafi and his clan could remain in Libya, provided he surrenders power. That may not play well on the streets of Benghazi. Convincing angry easterners that their tyrant may be toppled, but allowed to remain in Libya will be tough, especially if the NTC can't put its hands on the money its foreign supporters keep promising.

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