Libya’s rebel government asks for $3 billion in international loans

May 3, 2011

Libya’s rebel government said Tuesday that it is asking international donors for up to $3 billion in loans, warning that without the cash infusion it will be unable to pay the salaries of civil servants and provide food and medicine to civilians.

Rebel leaders have urged countries that froze Libyan assets to shift that money to them, but diplomats say there are legal obstacles to such a move. A senior U.S. official said the coalition wants to provide financial support to the rebels, but hasn’t committed to a precise amount and is trying to figure out how to do so legally.

Top diplomats from around the world, including Secretary of State Hillary Rodham Clinton, are scheduled to discuss ways to meet the financial needs of the rebels at a meeting in Rome on Thursday.

After more than two months of fighting, the economy in the eastern portion of the country has been badly battered. While most of the country’s oil comes from the east, forces loyal to Libyan leader Moammar Gaddafi have disrupted production, denying the rebels a potential lifeline. The effective partitioning of the country interrupted pay for the majority of workers here, who are employed in the public sector and were paid from Tripoli before the fighting began.

Until now, rebels had, for the most part, managed to keep those salaries coming. But, they warned, money is running out.

Ali Tarhouni, the rebels’ interim finance minister, told reporters in the de facto capital of the rebel-held east that the Benghazi government has only enough to carry it through “three weeks, at the most four weeks.”

“I need about $2 to $3 billion, and we are hoping to get most or all of this,” he said, adding that he expects the United States, France, Italy and Qatar to grant loans backed by frozen Libyan assets. Those funds could arrive in seven to 10 days, he said, and would be enough to fund the rebel government for three or four months.

The senior U.S. official, who was not authorized to speak on the record and so talked on the condition of anonymity, said it was unclear how the Libyan rebels had come up with the figure of $2 billion to $3 billion. “I think we have to wait and see what the breakdown is, or how and why they’re asking for that particular figure” before deciding if it’s an accurate reflection of their needs, he said.

The official said that “there’s a whole gamut of options people are looking at” to provide financial assistance without violating U.N. sanctions or their countries’ own laws. It was not yet clear whether one mechanism would be chosen when the United States and other allies in the Libya Contact Group meet Thursday, he said.

The rebels’ proposal that they receive frozen assets belonging to Gaddafi and his government presents legal hurdles for some countries, especially those, like the United States, that haven’t recognized the Transitional National Council, the self-appointed rebel authority, as Libya’s new government. In recognition of those obstacles, some European diplomats have floated the idea of creating a trust fund for the rebels, which would be repaid once a new Libyan government is established and oil revenues are flowing again.

The U.S Treasury has frozen more than $30 billion in Libyan assets since economic sanctions were imposed. U.S. officials say they could shift that money to the rebels if President Obama issued an executive order or if Congress passed legislation directing the president to make the funds available to the transitional government.

Beyond getting the legalities right, American officials want to make sure there is a structure in place to ensure that the money is well-used.

So far, Kuwait has announced a contribution of $180 million to the transitional government. The Obama administration has pledged to provide $25 million in non-lethal supplies to the rebels, such as uniforms, radios and body armor.

Jake Sullivan, a senior State Department official, said at a Washington briefing last week that the U.S. government hopes the Rome meeting will enable the international community “to ensure that we have coordination of all the different countries’ contributions” to the rebel government.

The appeal for new lines of credit came after two days of meetings held by the Transitional National Council, which was working to finalize the membership of a new executive body that will attend the Rome conference.

The rebel body took over administration of Benghazi, Libya’s second-largest city, in late February and now administers the eastern part of country.

A car bomb was detonated in central Benghazi, near the rebels’ seafront headquarters, just after 10 p.m. Tuesday, the first such explosion since fighting began in February.

With a speedy victory over Gaddafi looking increasingly unlikely, the rebels are preparing for what could turn into an extended stalemate. In addition to supporting the rebel army, the transitional government is providing essentials to the civilian population.

Shops in Benghazi are well-stocked, and shopkeepers say they are able to get supplies through the country’s eastern border with Egypt. But many here have withdrawn their money from banks and converted it to other currencies, leaving the region short of cash and worsening the already difficult economic situation.

Oil production dropped significantly after Gaddafi’s forces attacked installations in the desert. Exports from Libya have slowed to a virtual standstill since the conflict began, but Qatar says it facilitated the sale of 1 million barrels of oil — valued at about $120 million — for the rebels in April.

Walker is a special correspondent. Sheridan reported from Washington.

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