Libya’s Steadfast Resistance Sparks

As Libyan business and diplomatic professionals endorsed the mass revolt against Colonel Gaddafi and his family’s four-decade stranglehold on oil and the non-hydrocarbon economy, the IMF in perverse timing released its Article IV summary urging “steadfast reform implementation” to bring petroleum diversification benefits. It put 2010 GDP growth at 10 percent on a combination of commodity price recovery and fiscal stimulus as inflation doubled to 4.5 percent. The budget and current account surpluses hit 13 percent and 20 percent of output respectively, and hydrocarbons represented over 95 percent of exports. Net foreign assets in the central bank and sovereign wealth fund were $150 billion, and the two were getting Fund technical assistance before the civil strife erupted. State banks had sold 20 percent stakes to foreign bidders and interest rate liberalization began although private sector lending was meager. These listings dominated the 30 company startup stock exchange with capitalization at almost $3 billion. Overseas investors could take maximum 5 percent ownership and had a one-month holding period after selling shares, and several large houses had conducted fact-finding visits. Government fixed-income products were also in the process of introduction even as capital markets remained “undeveloped,” according to the Fund.

Several months before an annual report had been issued for Yemen, which has been fighting tribal and terrorist insurrections for years and where regular demonstrations have demanded the resignation of President Saleh, who has agreed to leave after his term is over in 2012. The financial system there is “rudimentary” with 15 conventional and Islamic institutions, and regular Treasury bill sales are held to cover the budget deficit with the one-year yield at 23 percent. GDP growth was projected to halve to 4 percent in 2011 as oil reserves which account for the bulk of revenue dwindle on inflation which may touch double digits. Foreign debt in the aid-dependent country rose to $6.5 billion, with Arab and Western donors currently providing over $1 billion in concessional facilities which may have to increase after the President’s January announcement of additional pay and subsidies. Elsewhere in the region’s smaller members despite similar transfers protests are also widespread in Jordan and Morocco, which both successfully placed Eurobonds several months ago. The former’s rating outlook has now turned negative on “public finance damage from ongoing turmoil” while the latter’s domestic government paper yields have shot up with auctions undersubscribed in recent weeks as once steadfast support withers.

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