By Sami Zaptia.
London, 19 July 2016:
The Libyan dinar continued its nose dive on the black market as it crashed for the first time ever beyond the five-dinar mark against the dollar today. Even during the worst years of the Lockerbie embargo and sanctions under Qaddafi it had never reached the LD 5 mark against the US dollar.
One Tripoli currency exchanger, who insisted on anonymity, told Libya Herald today that at one stage the dollar was quoted at LD 5.30 for cash transactions and LD 5.80 for cheque transactions per US dollar.
Asked to explain the reasons for its sudden surge from the high LD 4.80’s to LD 5.30, the currency dealer said that there was ‘‘no real reason. Just a failed government, that’s all. It just keeps going up and up and up’’, he added.
‘‘Those who have dollars are holding on to them and not selling’’, he explained implying that they think that the Libyan dinar is more likely to lose value over the next few days. ‘‘The foreign exchange market is dominated and monopolized by just a handful of dealers who are setting their own price’’, he explained.
‘‘The state and government don’t exist to be able to intervene (in the currency market) and do anything about it’’, he lamented, adding that the dollar could very soon ‘‘even reach seven dinars’’.
Pouring scorn on Presidential Council and Government of National Accord (PC/GNA) Prime Minister-elect Faiez Serraj, he said ‘‘Serraj is like Angelina Jolie. That’s what we call him in the (currency) market. He just keeps going around visiting places and mosques and wherever there are people, and just keeps kissing and hugging them. He is not offering any solutions or anything’’, he complained.
The consensus from those contacted by this newspaper today was that the dinar nosedive was a reaction to the latest UN organized talks in Tunis between the various Libyan political contenders.
Effectively, it was a vote of no confidence by the Libyan currency market-makers in the political situation in Libya. It was felt that nothing really positive or new came out of the latest Tunis round of dialogue between the PC/GNA and the Dialogue Committee. It was felt that it was just more vague and unspecified promises that the Libyan people had heard many times before.
The plunge in the dinar value comes ironically only a day after the Central Bank of Libya (CBL) had announced that it was increasing the amount of hard currency it was going to make available at the official exchange rate of US$ 1 to LD 1.37 for the import of five broad categories of goods (industrial goods, telecoms, aviation, children’s milk and medicines.) through Letters of Credit. The aim was to mitigate the rising black market exchange rates and rising prices and inflation.
The dollar exchange rate had been hovering just under LD 4 for most of the first two weeks of Ramadan, but had tipped over LD 4 peaking to over LD 4.50 at the end of June.
It had been operating in the LD 3 to LD 3.90 band on and off since March. It had broken the LD 4 mark on a number of occasions in May, but usually settled back under the LD 4 mark.
The problem of the crash in the dinar’s black market value is running in parallel with the ongoing cash crisis at Libya’s banks and is further eroding confidence in the whole Libyan financial system and political leadership.
At the end of June, the CBL had issued a simple, short statement in which it reiterated that the three root causes of the cash shortage were firstly, the political division of the country with a duplication of power centres of authority claiming legitimacy.
Secondly, the CBL cited that the drastic fall in Libya’s oil exports to around 27 percent (400,000 bpd) of the post 2011 peak of 1.5 million bpd, which have reduced the country’s hard currency revenues. The parallel crash in international crude oil prices has compounded Libya’s reduced oil production.
Finally, the CBL cited the insecurity in the country which has led to a loss of confidence in the banking system leading to many Libyans hoarding their dinars at home, rather than depositing them in their bank accounts.
The weakness of state institutions that the currency dealer had alluded to, especially the non-existence of a police force or an army that is loyal to the legitimately-elected government has had a huge effect on security and confidence. The continued existence and domination by militias of the security apparatus has denied the space for a centralized state security apparatus to emerge.
It will be recalled that on 2 April, three days after the Tripoli arrival of Faiez Serraj and his Presidency Council/Government of National Accord by boat at the Bu Sitta Naval Base, the dollar was exchanging for as low as LD 2.70.
However, just over a hundred days after Serraj’s arrival, the short lived optimism and honeymoon period that he and his PC/GNA had enjoyed seems truly over. With the exception of the fight against IS in Sirte and extremists in Benghazi and Derna, Libya seems to have actually gone backwards on many levels.
The decision by Serraj to seek the support of militias to prop up his Tripoli regime up, thereby consolidating their role, comes at the expense of the formation of a transparent and accountable legitimate police and army.
Libya is very much a hydrocarbon-dependent state and oil is its main source of hard currency. Serraj can help mitigate the loss of hydrocarbon revenue by increasing oil production. However, that requires a political settlement with Jadhran and his Magharba tribe who control the areas of the eastern oilfields which constitute two-thirds of Libya’s oil production.
A political breakthrough by Serraj has not looked on the cards. The PC is split with the eastern and Zintan members boycotting it and with the on-going tug-of-war with Hafter, Ageela Salah and the House of Representatives, a solution does not look imminent.
All these factors are adding to the poor economic, political and market sentiment that contributes to the dinar’s continuing loss of value with foreign exchange dealers and leading businessmen fearing a continuing fall in the dinar value.
*The black market dinar foreign exchange rates quoted reflect an average of variations quoted from one money exchanger to another in Tripoli at the time and day quoted to Libya Herald.