Libya: Gradual reforms to continue (page 1 of 2)

Libya's outlook continues to improve on the back of greater integration into the world arena, high oil prices and its economic reform program. Importantly, in May, Washington decided to renew full diplomatic ties with Tripoli and remove Libya from the US' list of state sponsors of terrorism. The US had lifted many economic sanctions and restored some ties in 2004 after Libya renounced
weapons of mass destruction. The latest move will boost economic activities between the two countries, especially in the oil sector.

However, the removal of the pro-reform prime minister, Shokri Ghanem, in a cabinet reshuffle in early March has raised concerns over the progress of the market reform program, with many fearing the reshuffle brings an end to the program. During his 3-year tenure, Ghanem moved to modernise the economy and the government took steps to liberalise the trade environment and open some sectors to foreign investment. Overall, the plan emphasised attracting private investment to increase the growth potential of both the oil and non-oil sector, while reducing the role of the government. Although Ghanem had the support of Muammar Qadhafi and his son Saif al-Islam al-Qadhafi (who is seen as being groomed for succession and is a key supporter of reform), he has isolated the powerful local committees and the more conservative members of the General People's Congress, who dominate the parliamentary body. The committees had attacked Ghanem's plans for privatising state companies, freezing salaries and reducing subsidies on essential products. This resulted in the implementation of the reform program being slow and subject to reversals.

The removal of Ghanem can initially be seen as a victory for the conservative 'old guard'. However, this does not necessarily mean the end of the reform program. Baghdadi Mahmudi has been appointed prime minister; he was deputy prime minister in the previous cabinet. He generally adopted a low profile, although he is on good terms with Seif al-Islam, suggesting an element of continuity. Adding to the reformist credentials of the new cabinet, Mohammed Ali al-Huwaiz, the former finance minister and a supporter of economic reform, was appointed deputy prime minister. Ahmed Munaisi Abdel-Hamid, the former governor of the Central Bank of Libya, replaced Mr Huwaiz as finance minister. Meanwhile, the Economy and Trade portfolio was
taken over by Tayeb Safi Tayeb, a political heavyweight.

The continuation of the reform programme is also supported by the fact that the cabinet members are politically astute and are expected to bring a less confrontational tone with the old guard. Many have revolutionary backgrounds and understand how the system works, while Ghanem was viewed a political outsider. Although the economic reform program will continue, especially with smoother relations between the new government and the political establishment, the process will still move at a snail's pace. The cumbersome bureaucracy and erratic decision-making will also slow the restructuring process.

Since being appointed premier, Mahmudi has reiterated that the oil-rich country will continue reforms to stimulate growth. The prime minister has particularly emphasised banking sector reform, including opening of the sector to private and foreign banks. The government also plans to continue taking measures that will make Libya more attractive to foreign direct investment. Reducing bureaucracy and complex regulations are key priorities. Although the government will continue with certain policies advocated by Ghanem, there is likely to be some change in emphasis.