By Sami Zaptia.
London, 20 April 2020:
The Tripoli Central Bank of Libya (CBL) issued instructions today to local banks to resume the opening of Letters of Credit (LCs). It said that this decision was taken with reference to the ‘‘state of necessity that requires banks continue providing their services regarding the opening of LCs’’.
The decision is seen as a climb down by the CBL in its power-play with the internationally recognized Libyan government headed by Faiez Serraj based in Tripoli. It had come under pressure from the Serraj government, the Libyan Business Council and the Libyan Banking Association to cave-in and change its policy. Its decision must be seen as a climb down as it had insisted on the Serraj government increasing the foreign currency sales surcharge as a prerequisite for it resuming the opening of LCs.
It will be recalled that Serraj had launched scathing attack on the Tripoli CBL and its Governor Saddek El Kaber on 8 April in a televised address. The attack was part of an ongoing battle between the Tripoli CBL and the Tripoli government as to who has ultimate control over economic and monetary policy.
He had accused it of:
- Delaying the payment of state-sector salaries for three months.
- Delaying the release of the Emergency Budget.
- Unilaterally stopping the disbursement of foreign exchange.
- Attempting to force his government to raise the foreign exchange sale surcharge and setting a new rate without consultation.
- Halting the opening of LCs.
- Interfering in all the country’s decisions, including on, oil, health, Coronavirus, ammunition, municipalities and on rubbish collection.
- Failing to come up with reform policies.
- Failing to solve queues at banks.
He had complained that the CBL was too rigid in its decisions during times of crisis, including the Coronavirus outbreak, the oil production/export stoppage and the war on Tripoli.
He had criticised the CBL for halting of the opening of LCs at a critical time for the country time when other countries around the world were increasing their strategic stocks of medical and food supplies. He placed the responsibility of this delay on El-Kaber, warning on 8 April that even if he did resume the issuing of LCs, it could be too late as the goods Libya needs may no longer be available during this Coronavirus crisis.
Serraj had said that his government through its Economy Ministry should be the competent authority making the country’s economic decisions – and not the CBL – and that the CBL should solve the country’s bank queues.
He said that the CBL failed to come up with reform policies – because its board is split and called for the reunification of the its board.
The CBL should reform its institutions under its competency, make liquidity available, reduce bank queues, complete its board, set foreign currency sales surcharge – instead of the government – and provide a monetary policy – by concentrating on its areas of competency.
The Libyan Business Council criticises the CBL and the Serraj government
Furthermore, on 16 April the Libyan Business Council had warned of the possibility of food shortages and price increases, especially in foodstuffs, due to the inflexible policies introduced by the Tripoli CBL on the opening of LCs.
Speaking to Libya Herald by phone from Tripoli today, Fellah was very dismissive of the CBL’s belated decision. He was very critical of both it and the Serraj government for not undertaking real economic reforms in Libya. He considered the September 2019 reforms as purely a revenue-raising mechanism by the Serraj government and the CBL – not true reforms.
Fellah insisted as long as the state sector still dominates the Libyan economy, with the state-sector salaries taking most of the state budget – there can be no talk of real reforms. He insisted that the private sector must be in the lead in the Libyan economy – if the country wants to make real progress.
Last week, the LBC had said that this was especially the case in view of the current conditions the country is going through and their ramification on prices, supplies and trade.
LBC chairman Abdalla Fellah, had warned of the upward increases in prices in the local market and his fear of the scarcity of goods, especially food stuffs, due to the inability to import and the usual flow of goods as a result of the prohibitive requirements contained in the CBL’s 8 April publication No. (2) to local banks on the conditions for opening LCs.
In a very damning swipe at the CBL, Fellah had said that the CBL’s new conditions for opening LCs has returned businesses to the ‘‘times of directed trade’’, in a subtle reference to the bad old Qaddafi days where supporters and cronies of the regime received exclusive preferential treatment.
The accusation had come as the CBL had published a list of select companies it had opened LCs for. Accusations of corruption and favouritism had already been directed at it.
Fellah had added that this prohibitive LC policy expressly reflects the central bank’s hegemony in its restrictive decisions and publications that don’t take into account current difficult circumstances that the world is going through in general and Libya in particular, which will have consequences for the Libyan market and therefore on the citizen in the form of scarcity of goods and high prices.
In the same context, the LBC referred to the Libyan Banking Association’s letter of 15 April to the CBL raising the same concerns about the scarcity of goods and price rises if a flexible mechanism in the implementation of documentary credits was not reached soon in order to easily provide the necessary goods to citizens at these difficult times.
From the CBL’s point view, in lieu of the adoption of Libya’s permanent constitution and subsequent full elections, the CBL considers the successive governments since the 2011 revolution that overthrew the 42-year old Qaddafi regime, as short-term, interim governments with questioned legitimacy and, in the CBL’s view, limited mandate and authority. To this end it sees itself as the long-term custodian of Libya’s accumulated oil wealth. It expects prudence and sustainable policies from these interim governments.
This is especially the case in view of the war on Tripoli since April 2019, the oil blockade since January this year and the Coronavirus curfew since March.
It remains to be seen if this belated resumption of the opening of LCs by the Tripoli CBL is a case of ‘‘too little too late’’. The fasting month of Ramadan, a peak demand period in Muslim countries equivalent to the Christmas period, starts on Friday. Most goods, and particularly foodstuffs, if ordered tomorrow through an LC, would not arrive in time. Nor would clothes for the Eid festivities.
It will be recalled that by opening LCs through the CBL – via their banks – importing Libyan companies gain access to the official lower exchange rate, as opposed to the black-market rate – and hence the clamour for LCs.
Serraj speech to the nation: Attacks CBL and treasonous media, says international community concerned purely with self interest
Libyan Business Council warns of food shortages and increased prices due to CBL’s inflexible Letters of Credit policy