By: Suliman S. Al-Shahomy*
In the midst of the suffering felt by Libyan citizens from total
failure at all services, division between the east and the west and among sovereign institutions like Central Bank and National Oil Corporation, Libyans felt panic and that all prices raised overnight.
Prices rocketed, even vegetables that has nothing to do with Dollar prices, not to mention food commodities which are mostly imported. The problem is that prices rocketed with no limits for the first time in Libya’s history. Everyone is asking for the reasons, many came up with justifications, blaming rival factions for the circumstances the country is going through, dire living which is colored in blood rather than hope, evolution and hard working.
Fear and panic control business men and merchants, as well as the Central Bank which is trying, by issuing series of decisions, to unlock the suffocating rope around the national Libyan economy. The only savior is to resolve problems impeding oil exports, and to restore previous productions levels, and I agree that this is only part of the solution and might take long time, others refer to the necessity of reducing governmental expenditures, specially that budget deficit reached, during two years, 40 billion, plus what is spent by the Central Bank, in Al-Baida, worth 4 billion, which means that the total deficit is 45 billion.
Of course, excessive expand of spending and inflation in the general budget with large expenses, comparing to before 2011, created excess liquidity that is bigger than the absorptive capacity of the Libyan economy, not to mention that more than third of the money is outside banks framework, as people and merchants prefer to keep money outside banks, especially with the difficulties facing getting money, may be not because of shortages, as local liquidity is available, but due to fear from kidnappings and difficulties to deliver money to some banks, beside that banks are not motivated to receive money and deposits due to laws banning dealing with bank interests, banks were taking advantages of deposits through buying Investment Certificates from the Central Bank, no wonder that some infamous Libyan banks are managing their operations from outside the country depending on illegal methods but aiming to protect high ranking officials, and protect the bank itself from stealing and abductions.
Such deteriorating economic situation force everyone to exchange Dinars with Dollars out of fear from the collapse of the dinar, subsequently demand for foreign currency raises, and as a result, value of Dinar would retreat outside banking framework.
What makes things worse, the decision of the General National Congress (GNC) to use cash alternative for commodities support, and assigning the Central Bank to transfer allowances directly to citizens accounts via defined structure, which I think come within difficult circumstances and might raise prices of basic goods and open the door for monopolization by some traders, so instead of dealing with the National Institute for Supply Commodities or prices balancing fund, we will have sole merchant or company that control prices and commodities availability, but such thing can be resolved by banning monopolization, the adoption of a mechanism for competition through the establishment of a competition council, so that any commodity will have many suppliers, beside the activation of competition and antitrust laws.
What is posed by the Central Bank to resolve the deterioration of dinar exchange rate in black market, through defining different prices for currency sale and putting limits for dollar purchasing, might be fruitful in improving exchange rates but won’t be enough at all, as we need first; reconciliation and unity of economic and monetary decision, second; comprehensive review and defined time line to reduce the gap between the two prices, third; economic package to raise with national economy, organize imports, firmly control state outlets.
Effective surveillance for credits, transfer operations and electronic cards need efforts to correct the imbalance in use, which is considered one of the tools used for trickery to get foreign currency back to black market.
Some people see that the Central Bank should reactivate exchange offices to buy currency through daily bidding processes, and then sell them back to citizens and traders. But such suggestion would make it difficult, and may get out of control, especially within the current circumstances that need accuracy, firmness and more inclusive steps to resolve problems rather than opening new doors that the Central Bank can’t follow.
Some suggest that the Central Bank pump large amounts of foreign currency in the market that will absorb excess liquidity and reserve prices at the black market. That suggestion, if theoretically true, will collide with the inability of the Central Bank to continue in this matter for a period due to absence of new revenues that feed Central Bank accounts due to suspension of oil sales and weakened capacity to supply foreign currency from abroad because of difficulties like burglary and inability of insurance companies to secure imports.
The bigger question is; can the Central Bank urgently resolve that defect? And if the matter is no more than a way by those who control black market to achieve political gains on the expense of the other side, and if the coming unity government has any role to play in resolving this dilemma?
The problem is much deeper than many thinks. Many gold traders buy used gold with cheap prices then turn it to ingots, then ship it to Turkey and Dubai and sell it with international prices, then buy Dollar in the local market with local prices, consequently contribute to disrupt and pressure local currency, not to mention loss of people gold savings.
I see that both, the Central Bank and the coming government, have role in resolving such situation, but we need economic policies that include monetary, trade and financial policies to resolve the worsening economic situation in Libya within medium and long term, beside putting systematic programs to raise with the economy, all components of the economic policies affect Dollar exchange rate not only the monetary one.
What can be done on an urgent basis, is to apply “shock policy”, which the Central Bank and Ministry of Finance should undertake by absorbing excess liquidity through:
first; provide monetary tools with seductive revenue in the form of checks and bonds for citizens, investments and banks to attract excess liquidity in the market. Such checks and bonds would be re-invested in funding transformation and infrastructure programs. Beside, provide large amounts of hard currency with little prices than that of the black market, gradually reducing prices until it reaches acceptable levels which could be 2 Dinars for one Dollar within a month from now.
Second; issuance of foreign currency balance that accurately specifies objects of expenditure in hard currency with the official price, and allow merchants, who want to trade outside budget items, to deal with different prices higher than the official one, like 30% higher.
Third; put organized mechanism to control sale and purchase of foreign currency for citizens that guarantees justice and transparency.
Fourth; put plane to attract liquidity outside banks by withdrawing older versions of currency.
All parties have to unify efforts, put clear programs, no one should stand still watching this crisis storming the national economy, real firm steps should be taken to guarantee improvements in living conditions and end deteriorating in the value of the national currency.
*A Libyan Finance Expert and The Founder of Libyan Financial Market
Translated By LIBYAPROSPECT