Regional

Outlaw Libyan dollar traders thrive

Four thousand U.S. dollars are counted out by a banker counting currency at a bank in Westminster, Colorado November 3, 2009. REUTERS/Rick Wilking

BENGHAZI: Amid the clothing and jewelry shops along an upmarket street in Benghazi is another kind of emporium. The wares on display: crisp U.S. dollar notes. In plain view of Libyan police and security forces, the stores are engaged in illegal foreign exchange. “The black market is always seen as the bad guy, but we just offer goods and services the state has failed to provide,” said 22-year-old Muhsin Ahmad, who works in one of the stores on Dubai Street. “We aren’t breaking the law, because there’s no law to be obeyed.”

Dollar trading is one of the most worrisome signs of the breakdown of authority since the ouster and death of Moammar Gadhafi in 2011, undermining Prime Minister Fayez al-Sarraj’s effort to unify the country under a United Nations-backed administration. The illegal currency trade thwarts the central bank’s efforts to manage the economy, contributes to a liquidity crisis, causes prices to soar and fuels corruption and organized crime. Sarraj’s task could hardly be more difficult. Eastern factions have yet to endorse the government in Tripoli. The smuggling of migrants, goods and arms is rampant. Daesh (ISIS) controls about 250 miles of Mediterranean coast from its base in Sirte. Oil revenue has slumped on collapsing prices and an 80 percent decline in production. Labor strikes and attacks on oil installations are draining state coffers in a country where 85 percent of salaries are paid by the government.

“The whole economic landscape is important for Sarraj, and the black market currency is just one manifestation of the challenge,” said Claudia Gazzini, a senior analyst at the International Crisis Group and author of the 2015 report “The Prize: Fighting for Libya’s Energy Wealth.” “In principle, only a healthy public-finance management system can overcome this but in the Libya we have today, it’s difficult to see how this can happen in the near future.”

Libyan businesses need dollars to pay for imports, even though most ordinary citizens aren’t allowed to exchange their dinars to get them. The central bank forbade the trade to protect dwindling currency reserves – down to $68 billion this month from $110 billion in 2013. Illegal traders manage to profit. Bankers, money changers and importers interviewed in five cities said Libyans use false invoices to buy hundreds of thousands of dollars at the official rate. Instead of using the money to pay for imports, they sell the currency to the black market at a higher rate.

Rates fluctuate by region, but were as high as four dinars to the dollar earlier this month as the chances of an oil-price revival fell and conflict between Libya’s factions intensified. The average this month is about 3.8 dinars to the dollar, more than twice the official rate of about 1.37 dinars. The black market is so much a part of life that television channels report daily rates in Tripoli and Benghazi.

Tripoli’s audit court, a respected neutral body that dates back to founding leader King Idris in 1955, said last month that the black market trade is “causing extreme harm to the Libyan economy and escalating the collapse of the state.”

The International Monetary Fund said last year the country was on track to hit bankruptcy in 2018. It might come even sooner than that, according to Richard Cochrane, a senior analyst at IHS Global Insights. The effects would be devastating in a country where the U.N. estimates about 2.4 million people, or a third of the prewar population, is in need of humanitarian aid and a fifth is suffering from malnutrition.

The profit margins of the currency trade are so large it pays to send ghost cargoes to Libya as part of the scam of false invoicing. Eight containers meant to be carrying aluminum bars were found empty in Khoms port, the local crime agency said May 7. The audit committee said 51 empty containers were found in the city’s port last year, plus 118 in Tripoli and 139 at Misrata. Officials say the real figures are probably much higher and it’s impossible to pin them down with any certainty because of corruption.

The central bank – which is based in Tripoli but still has two chains of authority, one in the capital and the other in the east – has tried to clamp down, but there’s no real way to punish violators in the absence of a functioning judiciary. What’s more, officials who probe fraud risk retaliation. In one high-profile example reported by local media last June, three bank investigators were kidnapped in Tajura by militiamen after finding fake papers.

“There’s an estimated 24 billion dinars in the streets,” Libyan economist Amr Farkash said. “The state needs to have the upper hand in terms of controlling the money supply in the market, which is not the case now.” The government will have to devalue the dinar, he said.

Sarraj’s spokesman, Fathi Ben Issa, said officials in both the Tripoli central bank and its parallel chain of command in the east are looking for solutions. Tuesday the premier ordered the Finance Ministry, along with the Justice, Interior and Foreign ministries, to start work even before being sworn.

He also needs to unite the chains of command in the central bank and the National Oil Corp., said Saad Ben Shrada, a member of the unity government’s Supreme Council and a former finance-committee lawmaker. Appointing a chairman of the Libyan Investment Authority would unlock about $60 billion of frozen assets held in the sovereign wealth fund.

There are 10 black market money shops on Dubai Street, owned by six families, and the newest one opened just this year. Ahmad says he’s making more money than ever and even gets a share of annual profits.

He had been studying economics at university and working in a clothing shop until both were destroyed two years ago during fighting between armed groups. “Everyone here knows that we deal with our customers with more integrity than banks do,” he said. “And in lawlessness, trust is everything.”

 
A version of this article appeared in the print edition of The Daily Star on May 20, 2016, on page 5.

Recommended





Advertisement

Comments

Your feedback is important to us!

We invite all our readers to share with us their views and comments about this article.

Disclaimer: Comments submitted by third parties on this site are the sole responsibility of the individual(s) whose content is submitted. The Daily Star accepts no responsibility for the content of comment(s), including, without limitation, any error, omission or inaccuracy therein. Please note that your email address will NOT appear on the site.

Alert: If you are facing problems with posting comments, please note that you must verify your email with Disqus prior to posting a comment. follow this link to make sure your account meets the requirements. (http://bit.ly/vDisqus)

comments powered by Disqus

Advertisement

FOLLOW THIS ARTICLE

Interested in knowing more about this story?

Click here