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



TRIPOLI 00000827 002 OF 002





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