Libyan reshuffle 'may halt reforms'

Libya's replacement of reform-minded Prime Minister Shokri Ghanem with a cautious figure will lead to a pause in economic reforms, strongly opposed by government hardliners, analysts and diplomats said.

Libya's top legislative and executive body on Sunday appointed al-Baghdadi Ali Al-Mahmoudi, who was Mr Ghanem's deputy, as Prime Minister. Mr Ghanem was put in charge of the oil sector.

The reshuffle by the General People's Congress, largely dominated by hardliners, followed a three-year power struggle with Mr Ghanem over economic reforms, analysts said.

Officials in Tripoli gave no reason for the reshuffle. But diplomats said Mr Ghanem, who has been pushing a broad programme of reforms with the support of Gaddafi's son Saif Al Islam, was sacked after he lost a fight with dominant conservatives who control the congress and the Revolutionary Committees, the de facto single ruling party in Libya.

"The adversaries of Ghanem, whether they have powerful economic positions or are in the strong Revolutionary Committees, often challenged him with nationalistic arguments," said one Arab diplomat in Tripoli.

"Among the arguments they had put out was that the economy needs a nationality... They said that opening the gates for economic liberalism will sell the economy out to foreigners as there is no home-grown base for reforms," he added.

Mr Ghanem, fighting a bloated bureaucracy, planned to privatise state-owned companies and banks, slash government subsidies on consumer goods and give the private sector a broader role in the socialist-based economy.

He proposed replacing subsidies - which cost the state more than $1 billion a year - with direct payments to needy people, arguing they benefit a wealthy minority. His supporters gave the example of rich farmers who use subsidised flour to feed cattle.

Libyan leader Muammar Gaddafi had occasionally backed Mr Ghanem in his reform dive, including in 2004 when he declared that socialism had failed.

Analysts and diplomats said Mr Ghanem made little progress in his reform drive because conservatives with key economic and political leverage blocked his decisions.

"They (conservatives) appointed al Baghdadi as Ghanem's deputy to block or water down every step Ghanem attempted to make," said one Libyan economic analyst.

"Al Baghdadi acted like a filter of the Prime Minister," he added.

Diplomats said Central Bank Governor Ahmed Mohammed Moneisi, who was appointed new finance minister in the reshuffle, does not share Mr Ghanem's enthusiasm for reforms, including allowing foreign banks to compete in the domestic market.

Diplomats recalled a stormy meeting of the Congress in 2004 when Mr Ghanem clashed with hardliners over the need for reforms.

"At that meeting, Ghanem was about to be sidelined. Then Gaddafi stepped in and convinced the gathering, saying 'this man masters the economy very well and it is good for you and the country to keep him'," said a diplomat.

He and other diplomats said they believed Mr Ghanem was replaced because Gaddafi no longer backed him.

Analysts said putting Mr Ghanem in charge of the oil sector will however revitalise Tripoli's efforts to modernise and upgrade the energy industry, they added.

"Ghanem was shunted out of the reforms of the non-oil economy to focus on oil and gas development as he enjoys a good reputation among oil investors and industrialists," said a Libyan economy analyst who asked not to be named.