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C O N F I D E N T I A L SECTION 01 OF 05 TRIPOLI 000227

SIPDIS SIPDIS

DEPT FOR NEA/MAG, INR

E.O. 12958: DECL: 3/12/2018

TAGS: PGOV PREL ECON EFIN LY

SUBJECT: BACK TO THE FUTURE? QADHAFI CALLS FOR DRAMATIC SOCIO-ECONOMIC CHANGE IN GPC SPEECH REF: TRIPOLI 166 TRIPOLI 00000227 001.2 OF 005

CLASSIFIED BY: John T. Godfrey, A/DCM, Embassy Tripoli, Dept of State. REASON: 1.4 (b), (d)

1.(C) Summary: In a recent speech given at the opening of the annual General People's Congress, Leader Muammar al-Qadhafi roundly criticized the existing Libyan government structure for having failed to distribute oil wealth to the Libyan people. Decrying inefficiency and corruption, he called for the system of General People's Committees that have formed the basis of government since the late 1970's to be completely dismantled by year's end and replaced with an as-yet undetermined structure. He also advocated the direct transfer of oil revenues - he suggested the amount of 5,000 Libyan dinar per month - to Libyan families and radical privatization. Virtually all social services - health care, education, pensions and retirement funds, and utilities - would be privatized, and government salaries would be eliminated. Qadhafi's plan for restructuring the GOL and privatizing the majority of state-owned and operated services could represent his most radical experiment in governance since the introduction of the GPC's and subsequent establishment of the Revolutionary Committees in the late 1970's. Business leaders, hopeful that the Congress would offer clear signs of the regime's commitment to continued economic reform, are troubled that the GOL is biting off more than it can chew by taking on wholesale structural reform in tandem with privatization. The proposed changes would strike a direct blow at the tacit pact - cradle-to-grave subsidies financed by oil revenues in exchange for political quiescence - that has undergirded the regime for decades and could signal political turbulence fomented by old guard elements already uneasy about the extent and pace of change in Libya. End summary.

OIL WEALTH A MIXED BLESSING THAT NECESSITATES CHANGE

2.(U) In a speech delivered on March 2 to the annual session of the General People's Congress in Sirte, Libyan leader Muammar al-Qadhafi decried the failure of the General People's Committees to effectively distribute Libya's oil wealth to its people. While the 1969 revolution was initially successful in reclaiming Libya's oil wealth for ordinary Libyans, widespread corruption and failed implementation at all levels of government had engendered widespread dissatisfaction with public services, especially education, health, and infrastructure development. Qadhafi, claiming Arab governments in oil-rich states that failed to fairly dispense oil wealth risk being toppled by their own people in the near future, said increased oil prices made the cost of the General People's Committees' (GPC's) failure to effectively distribute the nation's oil wealth increasingly untenable.

(ANOTHER) RADICAL RESTRUCTURING OF GOVERNMENT IN THE OFFING

3.(C) Qadhafi called on the Congress to abolish by year's end the system of the GPC's, which has constituted the de facto government structure since the late 1970's, and to instead directly transfer Libya's oil revenues "to the people". Contacts at the MFA and Central Bank recently told us that five GOL committees - responsible for the budget, economy, administrative structure, wealth distribution and legal reform - were quickly constituted after Qadhafi's speech to formulate plans for dismantling the GPC's, standing up alternate structures and implementing direct distribution of oil wealth. Final plans for shifting from the GPC's to an as-yet undetermined structure are due by September 1. Central Bank Governor Bengdara told the CDA March 12 that restructuring of the GOL would precede privatization of government-owned entities and services such as health, education and utilities.

SECURITY, FOREIGN POLICY APPARATUS TO REMAIN UNCHANGED

4.(U) Citing common practice in other countries, Qadhafi identified five key authorities - defense, foreign affairs, interior, internal security and external security - that would remain unchanged, but should report directly to the head of state (formally the Secretary of the General People's Congress) instead of through the existing structure. He noted that, in practice, the Libyan Prime Minister-equivalent does not and should not exercise oversight over these areas, proposing that they instead be considered as "sovereign ministries" that would report directly to the head of state and not/not through the GPC's and the Secretariat of the General People's Congress. He proposed an alternative form of military conscription in which all eligible Libyans would be required to do two-month rotations in the armed forces in lieu of maintaining a standing army.

DIRECT REDISTRIBUTION OF OIL WEALTH PROPOSED TRIPOLI 00000227 002.2 OF 005

5.(U) Citing the inability of GPC's to effectively distribute Libya's oil-generated wealth to its citizens, Qadhafi proposed a redistribution scheme by which half a million Libyan families, totaling some three million people, will receive monthly stipends representing their share of Libya's oil revenues. Subsidies for gasoline, food, commodities, health care and education would be eliminated. Qadhafi proposed a stipend figure of 5,000 Libyan dinar (LD) per month (about $4,000). Ironically, the GPC system whose elimination he advocated will be responsible for developing a mechanism to transfer oil wealth before its demise. The GPC's annual budget had steadily increased to a peak of $32 billion (37 billion LD) in 2007; budgets under the new distribution system should settle at about 30 billion LD per year according to Qadhafi. (Note: State-owned media subsequently reported that the 2008 budget would total 49 billion LD, about $39 billion. End note.) Saying he had advocated a similar reform package for years, the Libyan leader argued that if only the Libyan people had taken his advice in the past, they'd be rich already.

WITH CORRESPONDING PRIVATIZATION OF STATE-OWNED/OPERATED SERVICES

6.(U) Once the GPC system is dismantled, all spending decisions will devolve to the private sector. In lieu of the GPC structure, Qadhafi suggested the Libyan people would spontaneously establish "real committees" of around 100 individuals for the purpose of managing private sector economic activity. He cautioned that while oil prices are high now, they would not always remain so. While acknowledging that most Libyans would not do so, he encouraged them to save and invest some of their monthly allotment. Qadhafi called for the abolishment of all loans, criticizing the Libyan financial sector both for discriminatory lending practices based on personal and tribal affiliation and for a poor track record on non-performing loans. He hinted at the establishment of an individual income tax system. Qadhafi spoke at length about the ways in which he perceives the GOL to be oversized and overextended, citing services such as HIV/AIDS testing, avian bird flu detection and veterinary care as issues that are beyond the competence of most governments. He noted approvingly (and incorrectly) that the U.S. government does not fund cultural programs. He focused on radical privatization, stressing health care and education, as the means by which to trim the public sector bloat and further empower the private sector.

EDUCATION, HEALTH CARE ARE KEY AREAS

7.(U) Qadhafi spoke at length about education, saying Libyans will be solely responsible for financing their children's education, either within Libya (by funding school construction and paying teachers' salaries) or abroad. "No one [in the Libyan government] is responsible for [a child's] education, whether locally or abroad," he said. Lamenting the fact that most Libyan schools lack computers and sufficient numbers of psychiatrists and social workers, he suggested that privately-funded and operated schools might do better. He encouraged Libyans to pay for their children to study abroad if their choice of career required specialized education. Qadhafi also said privatization of education would extend to religious education, opining that "you [the people] must run the madrassas~ you take those Quranic schools." On health care, the GOL had invested considerable sums to build hospitals and train medical personnel, but Libyans complained about the quality of care and traveled abroad whenever possible for medical care. By privatizing hospitals, they would now have a chance to directly improve the quality of medical care.

HOW TO KEEP LIBYANS WORKING?

8.(U) Complaining that annual outlays for government salaries are far too high, Qadhafi called for an end to public sector wages and the abolishment of government-funded pensions and retirement funds. (Note: The Central Bank Governor told the CDA salary outlays officially totaled about 10 billion LD, but suggested the real number is higher. End note.) He noted the Libyan people would "need to think about" how to create incentives for employees in key public functions, such as security and defense, to continue working if they're receiving the same monthly stipend as everyone else. He speculated that some security functions might eventually be filled with volunteers.

QADHAFI ROLLS THE DICE ... AGAIN

9.(C) Qadhafi's plan for restructuring the GOL and privatizing TRIPOLI 00000227 003.2 OF 005 the majority of state-owned and operated services could represent his most radical experiment in governance since the introduction of the GPC's and subsequent establishment of the Revolutionary Committees in the late 1970's. Conceding that the speech was "substantially different" than anything anyone expected (see reftel for Post's preview of the General People's Congress), Qadhafi Development Foundation (QDF) Director Dr. Yusuf Sawani told P/E Chief March 3 that the "dramatic initiatives" were designed to "radically accelerate" government and economic reform, and to open further space for civil society actors. MFA Secretary for the Americas Dr. Ahmed Fituri told the CDA March 5 that Secretary of the GPC for Manpower, Employment and Training Matuq Matuq - a member of one of the implementing committees - called him shortly after Qadhafi's speech asking for details about the U.S. system of local, state and federal governance. Fituri said Qadhafi, frustrated by the "bulky and non-responsive" GOL, had suggested the U.S. system, including independent federal agencies such as the EPA, as a possible model. Fituri told the CDA he threw cold water on the idea in his conversation with Matuq, cautioning that the U.S. system was too complex to be effectively replicated in Libya.

MUCH ACTIVITY ...

10.(C) The Ministry of Economy and Trade's Director of Foreign Trade, Dia Hammouda, told Emboffs March 12 that the GOL's most senior leaders are focused on implementing the "drastic" plan. The five committees responsible for the budget, economy, government/administrative structure, wealth distribution and legal reform comprise the Secretary of the General People's Congress (head of state equivalent), his deputy, the Prime Minister-equivalent, his deputy and secretaries (minister equivalents) for the relevant General People's Committees. The committees have been meeting "continuously" since the March 2 speech to develop recommendations for implementing the plan. A session to review initial plans and recommendations is scheduled for early next week. Conceding that the changes represented a serious political gamble, Hammouda cited a Libyan proverb: "From Libya comes the new".

... BUT HOW MUCH REAL MOVEMENT?

11.(C) Nonetheless, it remains unclear how extensive the change will really be. Abdulati Obeidi, MFA Secretary for European Affairs, told the visiting Lord Mayor of London on March 8 that the biggest shift could be expanding the power of the Prime Minister-equivalent's office to include "subcommittees" for issues such as health, education and infrastructure that would create policy "at the strategic level". Various GOL contacts have speculated that the existing GPC structures could remain essentially intact, but under different names and under different lines of authority, with the power of a more formalized executive in the form of a strengthened PM-equivalent's office. Underscoring the fact that real change may be slower in coming than the impatient Qadhafi would like, Deputy Foreign Minister-equivalent Muhammad Siala, whose position was summarily abolished along with all other deputy GPC secretary slots, remains in his office and is "carrying on as SIPDIS normal", at least for now.

"SOVEREIGN MINISTRIES" AN ACKNOWLEDGEMENT OF REALITY

12.(C) MFA Americas Desk Director Muhammad Matari told P/E Chief that creating the proposed five "sovereign ministries" could greatly diminish the authority of the General People's Congress in foreign policy and security issues. The general who heads the Support Division of the Ministry of Interior-equivalent told P/E Chief on March 6 that establishing foreign affairs, defense and security services as exceptions to the new rule reflected the reality that the regime rests on "the pillar of security". It was fine to tinker with social engineering in civilian ministries, but "everyone" understood that at its core the regime depended on the foreign affairs, defense and security organizations because "Libya is not an inherently stable country".

5,000 LD ALLOTMENT "AN EXAMPLE"; CENTRAL BANK CONCERNED ABOUT INFLATION

13.(C) Noting that the figure of 5,000 LD was "an example" of the amount of direct oil wealth transfers that might be settled on, Central Bank Chairman Bengdara stressed to the CDA on March 11 concerns about inflation. He had instead proposed that stocks and shares in government-owned companies and investment funds comprise some or all of the distribution package. Citing TRIPOLI 00000227 004.2 OF 005 Libyans' penchant for consumer spending and lack of financial discipline, he fretted that many Libyans would fail to save and invest, limiting non-oil sector economic growth and leaving many without cash reserves if oil prices and monthly allotments dropped. Libyans are "much more like Italians than like the British" in wanting to spend rather than save, he said. Stressing the enormity of the proposed changes, Bengdara said that while Qadhafi wanted changes implemented "very soon", a realistic timeline for implementation was 10 years. Overly rapid privatization would be disastrous; privatization would need to be carefully sequenced with government restructuring to be effective.

SITUATION REGARDING QADHAFI'S SONS UNCLEAR

14.(C) As reported ref A, observers hoped results of the Congress would signal the relative positions of Saif al-Islam al-Qadhafi and his recently ascendant brother, Muatassim al-Qadhafi, the two sons of Leader Muammar al-Qadhafi widely considered to be rivals to succeed their father. In typical Qadhafi fashion, results of the Congress are unclear. Muatassim, as National Security Adviser, is the only Qadhafi son formally represented on the new administrative structure committee, potentially the most important of the five committees tasked with restructuring the government. But two key members of the General People's Congress (Parliament-equivalent) viewed as Muatassim allies - former Secretary of the GPC Zanati Ahmed Zanati (Speaker of the Parliament-equivalent) and Deputy Secretary of the GPC Ahmed Ibrahim - lost their seats, calling SIPDIS into question how much Muatassim really gained.

15.(C) In addition, xxxxxxxxxxxx who works with Libya's economic and financial sectors told EconOff March 11 that Dr. Mahmoud Jibril, head of the National Planning Commission, ally of Saif al-Islam and a leading advocate for economic reform, would play a key role on three of the five implementing committees - budget, economy and wealth distribution. Jibril, who as recently as early February was so frustrated by his inability to effect reform that he had submitted letters of resignation on three occasions, is reportedly now convinced that Qadhafi's commitment to dramatic change is sincere enough that he has agreed to stay on - for now.

16.(C) xxxxxxxxxxxx offered a different interpretation, telling the CDA that Qadhafi's proposed changes had effectively created areas in which the three leading sons (Saif al-Islam, Muatassim, and Khamis, an army officer) could play key roles. By differentiating between economic/social areas of governance (Saif al-Islam's purview) and "sovereign ministries" divided between security organizations (Muatassim) and defense (Khamis), Qadhafi had avoided signaling which son is the leading contender to succeed him. Reiterating remarks in the run-up to the Congress, businessman Zahri Muntasser told P/E Chief March 13 that the "changes" effectively extended Qadhafi's hedge of his December 2003 "strategic bet" to give up WMD and terrorism by fostering the perception that a traditional "strong man" (Muatassim or Khamis), vice the more reformist Saif al-Islam, could take - or at least share - the reins of power. BUSINESS COMMUNITY CONFUSED 17. (C) Business figures concerned by contradictory signals in late 2007 about the GOL's commitment to economic reform and hopeful that the Congress would clarify the situation (reftel) similarly argue the situation is now more confused than before. Rather than proceeding with measured reform within the existing structure while solidifying economic reform, Qadhafi was trying to "change everything at once". Frustrated by what he perceived to be "juvenile impatience", leading businessman xxxxxxxxxxxx(strictly protect) decried to P/E Chief the idea that the GOL could undertake wholesale structural reform and simultaneously manage the massive infrastructure and development programs it is trying to complete in time for the 40th anniversary of the revolution on September 1, 2009. Trying to undertake extensive political and economic reform simultaneously was "a recipe for disaster", he said. xxxxxxxxxxxx told P/E Chief he had been "disappointed" by the speech and was inclined to continue waiting to see how the changes played out before deciding to undertake any further investment. 18. (C) Comment: This year's General People's Congress was closely watched for signs of the regime's commitment to economic and limited political reform. In classic fashion, Qadhafi TRIPOLI 00000227 005.2 OF 005 surprised everyone with his call for a dramatic restructuring of Libya's existing political and economic system. His tone and language were petulant, reflecting clear frustration that the GPC system (of which he was the architect) had so demonstrably failed, but also with the complaints of Libyan citizens about the Jamahiriya's shortcomings, particularly in the areas of education and health care. Reminded of the difficult days of the 1980's and early 1990's, when revolutionary zeal was at its peak, some contacts have expressed concern that the speech portends a return to the turbulent experimentalism of the past. The angry tone and specific proposals are more consistent with yesteryear Qadhafi offerings than with the philosopher-king image he has cultivated more recently. xxxxxxxxxxxx flatly told the CDA that many Libyans found Qadhafi's remarks "un-statesmanlike". 19. (C) Comment (continued): More significant than the jarring tone was Qadhafi's seemingly contradictory mix of uber-libertarianism and old school revolutionary speak. Points blasting U.S.-style democracy as "falsifying the true will of the people" and lauding the Jamahiriya's "state of the masses" as a superior model came hard on the heels of remarks decrying the failure of the GPC's and a call for the complete privatization of Libya's socio-economic structure, a marked shift from the pseudo-socialist egalitarianism of old. Perhaps most importantly, the proposed changes would strike a direct blow at the tacit pact - cradle-to-grave subsidies financed by oil revenues in exchange for political quiescence - that has undergirded the regime for decades. Libyans' cautious optimism about receiving sizeable monthly allotments of oil revenues has been tempered by real concern about the practicalities of self-financing virtually every aspect of their lives. How aggressively the regime implements the proposed changes - it wouldn't be the first time Qadhafi's dramatic calls for change ended up being a tempest in a teacup - could determine how much more old guard elements already dissatisfied with what they perceive to be too much change are willing to take. The inclusion of more conservative individuals such as former Secretary for Manpower, Employment and Training Matuq Matuq and SIPDIS National Security Adviser Muatassim al-Qadhafi on the key administrative structure committee charged with implementing government re-structuring suggests an attempt to balance competing reformist and traditional constituencies. In the end, Qadhafi's speech brings to mind the recent comment of an MFA official: "We don't have a government here ... we have something else". End comment. STEVENS 0 03/17/2008 21436 PGOV,PREL,ECON,EFIN,LY BACK TO THE FUTURE? QADHAFI CALLS FOR DRAMATIC SOCIO-ECONOMIC CHANGE IN GPC SPEECH In a recent speech given at the opening of the annual General People's Congress, Leader Muammar al-Qadhafi roundly criticized the existing Libyan government structure for having failed to distribute oil wealth to the Libyan people. Decrying inefficiency and corruption, he called for the system of General People's Committees that have formed the basis of government since the late 1970's to be completely dismantled by year's end and replaced with an as-yet undetermined structure. He also advocated the direct transfer of oil revenues - he suggested the amount of 5,000 Libyan dinar per month - to Libyan families and radical privatization. Virtually all social services - health care, education, pensions and retirement funds, and utilities - would be privatized, and government salaries would be eliminated. Qadhafi's plan for restructuring the GOL and privatizing the majority of state-owned and operated services could represent his most radical experiment in governance since the introduction of the GPC's and subsequent establishment of the Revolutionary Committees in the late 1970's. Business leaders, hopeful that the Congress would offer clear signs of the regime's commitment to continued economic reform, are troubled that the GOL is biting off more than it can chew by taking on wholesale structural reform in tandem with privatization. The proposed changes would strike a direct blow at the tacit pact - cradle-to-grave subsidies financed by oil revenues in exchange for political quiescence - that has undergirded the regime for decades and could signal political turbulence fomented by old guard elements already uneasy about the extent and pace of change in Libya.