November 3, 2011 / 11:25 AM / in 6 years

Libya c.bank looks to IMF amid cash crisis

TRIPOLI (Reuters) - Libya’s acute cash crisis is set to get worse and its banking system requires a complete overhaul that will be guided by the International Monetary Fund and World Bank, the central bank’s recently appointed governor said.

Saddek Omar Elkaber told Reuters in an interview that just $1.5 billion out of around $170 billion of Libyan assets abroad had been unfrozen, and with the first delivery of the war-torn country’s new banknotes still nearly two months away, the liquidity crisis was far from over.

“The first shipment will arrive at the end of December... We are going to have to manage the liquidity problem until then,” Elkaber said earlier this week.

Elkaber, previously deputy CEO at the Arab Banking Corporation in London, replaced Gassem Azzoz as head of the central bank a month ago, officials of the governing National Transitional Council said.

Reform of Libya’s banking system should be guided by a roadmap assembled by international bodies including the IMF, the new governor said, but for now the central bank’s priority was coping with the banknote shortage.

Wage increases, medication and reconstruction are putting a further strain on the very limited cash supply, and queues outside banks have grown longer this week ahead of the greater Eid festival of sacrifice, when families traditionally buy a sheep for slaughter at a cost of around 500 Libyan dinars.

A lack of cash as well as a shortage of animals has caused prices to rise by several hundred dinar, compounding the problem.

Despite a UN resolution scrapping sanctions following the death of ousted leader Muammar Gaddafi, the process of unfreezing Libyan assets is lengthy because the money is spread out across many countries with different regulations.

“The promises have been made for the media,” Elkaber said.

A NEW BANKING MODEL

He said he hoped the influence of international organizations would help shape a new Libyan model of banking, and the groundwork had already been laid by IMF and World Bank over the previous 2-3 years.

“The IMF and WB have a roadmap and I would like to go ahead with the facelift. We need a strong central bank,” he said.

A primary obstacle would be overcoming a shortage of labour because the national workforce lacked the skills required for the banking sector - as in most sectors across the economy. These included English and other foreign languages, which were removed from the school curriculum under Gaddafi’s rule.

“Over the past 42 years the old regime tried to break the education system... there are not enough high-skilled workers,” he said.

Elkaber urged foreign skilled workers to return to the country, but conceded that worries about security could remain an impediment for years to come.

The demands of bringing the country’s unruly and heavily armed militia under the control of the transitional government is worrying foreign observers and many foreign workers are adopting a wait-and-see approach until stability is restored.

“The security issue will take some time,” he said adding that it could take five years for the new political system to settle.

For now, working out a basic budget and dealing with emergencies were the bank’s priority. It was too early to comment on exchange rate policy, foreign licenses or specific banking models Elkaber said.

“Our focus is food, medicine and reconstruction in areas like Sirte, Misrata, Zintan and Zawia, but also in smaller towns, and to try to reactivate manufacturing,” he said.

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