CENTRAL BANK GOVERNOR OUTLINES LIBYA'S REACTION TO THE FINANCIAL CRISIS

C O N F I D E N T I A L SECTION 01 OF 02 TRIPOLI 000827

SIPDIS

CAIRO FOR TREASURY ATTACHE CLARENCE SEVERENS; STATE FOR
NEA/MAG; ENERGY FOR GINA ERICKSON; COMMERCE FOR NATE MASON

E.O. 12958: DECL: 10/17/2018
TAGS: EFIN, EPET, ECON, EINV, PGOV, PREL, LY
SUBJECT: CENTRAL BANK GOVERNOR OUTLINES LIBYA'S REACTION TO THE
FINANCIAL CRISIS

REF: A) TRIPOLI 227, B) TRIPOLI 699, C) TRIPOLI 130

CLASSIFIED BY: John T. Godfrey, CDA, U.S. Embassy Tripoli, Dept
of State.
REASON: 1.4 (b),(d)
1. (C) Summary: In a meeting with a visiting U.S. trade
specialist, Libya's Central Bank Governor shared his thoughts on
the current financial crisis and outlined steps the government
is taking to maintain financial stability. Libya is less
focused on the short term impact of declining stock and
investment holdings and more concerned by potential near to
mid-term declines in oil prices, which could adversely impact
the government's ability to finance its ambitious development
programs. He had cancelled his trip to the recent IMF/World
Bank meetings to help orchestrate Libya's efforts to shift its
position in global markets, to include a decision earlier this
week to purchase some two billion dollars worth of depreciated
stock in European and U.S. markets. End summary.

2. (C) On October 13, Public Affairs-sponsored speaker Bruce
Stokes, a trade and economic specialist with the National
Journal, met with Libyan Central Bank (CB) Governor Farhat Omar
Ben Gdara. Stokes was accompanied by the CDA, PAO, Econoff and
PA Assistant. (Note: Ben Gdara is one of our more impressive
and candid interlocutors on banking and financial matters.
Young, intellectually curious and dynamic - there is always a
stack of books on current affairs, which he reportedly devours,
on his desk - there is criticism that he is unqualified. He is
reportedly a protigi of Saif al-Islam al-Qadhafi, son of Muammar
al-Qadhafi, who strongly advocated his selection as CB Governor.
End note.) Ben Gdara discussed how the current global
financial crisis has affected Libya's development plans and
steps the government is taking to maintain financial stability.

3. (C) Downplaying concern about the short-term impact of the
crisis on Libya's sizeable investments in international markets,
Ben Gdara stressed that a continued flattening of oil prices
could significantly and adversely impact Libya's ambitious
development programs. Current development budgets, most of
which date to 2006 and 2007, were calculated on the assumption
that oil prices over the next five years would be at/around USD
65; however, as oil prices spiked earlier this year, larger
development-related commitments were made. If oil prices
continued to decline, Libya could be forced to reconsider
projected development project outlays and/or seek additional
foreign investment capital. A combination of flat oil prices
and continued volatility in global markets would be particularly
difficult for Libya. Ben Gdara also suggested that
implementation of the ambitious government re-structuring and
privatization program proposed by Muammar al-Qadhafi in March
2008 (details refs A-B) could be delayed by lower oil prices.

4. (C) Ben Gdara said maintaining Libya's current level of
foreign currency reserves was a priority for the GOL; declining
oil prices could make that difficult. He said Libya currently
has roughly USD 50 billion worth of foreign currency holdings in
offshore accounts, which he likened to an emergency fund, and an
additional USD 45 billion in foreign currency holdings managed
by its sovereign wealth fund, the Libyan Investment Authority
(LIA). (Note: Italian and French diplomats have told us that
GOL policy calls for maintaining sizeable hard currency holdings
as a hedge against the possibility that Libya could fall out of
international favor and again be subject to international
sanctions. End note.)

5. (C) Due to the financial crisis, Libya has reconfigured its
own foreign investments to take advantage of low prices. Ben
Gdara said GOL fund managers had decided earlier this week to
purchase USD 700 million worth of depreciated stock in the U.S.
market and almost USD 1.3 billion worth of stock in European
markets. (Note: The U.K. Embassy's DHM told us that the LIA had
recently contracted with several well-respected fund managers in
London's financial sector (NFI) to manage day-to-day investment
decisions for Libya's sovereign wealth fund. End note.) He
partly attributed the decision to cancel his attendance at the
recent IMF/World Bank annual meetings in Washington to having
had to stay home to help make decisions about re-positioning
Libya's investments in light of the ongoing crisis. He stressed
that he had looked forward to meeting with Under Secretary
Jeffrey and others, and hoped those meetings could be
re-scheduled.

6. (C) Comment: Libya's decision to re-invest in U.S. financial
markets is an interesting development in light of the fact that
it divested itself of billions of dollars worth of U.S. holdings

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earlier this year in response to adoption of the Lautenberg
Amendment (ref C),which allows claimants in terrorism-related
cases in U.S. courts to seek attachment of Libyan assets. End
comment.
GODFREY