A rentier state's response to oil crisis: economic reform policies in Libya.

Nations eventually respond to a balance of payments crisis with austerity measures. Therefore, when Libya was faced with such a crisis in the early 1980s as a result of the slump in the oil market, it was no surprise that the regime responded by adopting austerity policies to address the imbalances in the economy. However, the Qaddafi regime soon went further and adopted an economic reform program aimed at liberalizing and privatizing the economy. This was surprising given the Libyan regime's earlier policies and its ideological rhetoric that was highly hostile to private enterprise.

In fact after the 1969 coup, the role of the state in the Libyan economy gradually increased. Government expenditure as a share of GDP rose considerably. So did the number of jobs in the public sector. Ideologically the regime sought to dismantle the state and to create an image of a 'stateless society.'(1) However, ideological intent did not totally translate into reality largely because the huge external oil rents accrued directly to the state. As a result of the centralizing effect of oil revenues, the state acquired distributional and developmental functions, which in turn led to further expansion of the state machinery.

In its early years, however, the regime continued to support the idea of privatization. The state policy of supporting small Libyan entrepreneurs aimed to create a power base. As a result of subsidies and government contracts small businesses in particular prospered.(2) Nevertheless, after the consolidation of power by Col. Qaddafi a drastic political and socioeconomic transformation of Libya started in the early 1970s. In 1973 Qaddafi announced the 'cultural' or 'popular revolution' and introduced the concept of 'people's power'.(3) The economic policies that were implemented under the new jamahiriya system were designed to inhibit the private accumulation of wealth. In 1978 rental payments for property were outlawed; all enterprises were required by law to be run by 'worker's committees'; and the state took over responsibility for the importation of all goods and control over all foreign exchange. In 1980 all currency notes over one dinar were taken out of circulation. In 1984 state supermarkets were created and all private transactions became illegal. As a result of these policies virtually all sectors of the Libyan economy came under state control.(4) Against this background the significance of the recent shift in the state's economic policy toward more emphasis on the private sector is obvious.

This article attempts to explain the dynamics of economic reform in Libya. An analysis of Libyan economic reform highlights the possibilities and limitations of implementing these policies in rentier states. It also shows that the analysis of the interaction between international and domestic political economies is crucial in understanding the process of economic policy reform in Libya.

THE CRISIS AND THE RESPONSE

In mid-1986 the price of oil collapsed: spot prices, which averaged about $27 per barrel in 1985, fell to less than $10 in 1987. However, the slump in the oil market had started earlier. Since the end of 1980 there had been a decline in world oil consumption and especially a great fall for OPEC oil production from a peak of about 30 million barrels per day (mbd) in 1979 to about 17 mbd in 1986. Given Libya's dependence on oil revenues,(5) the oil price collapse caused serious cash flow problems and in general had adverse consequences for the economy. Export revenues were more than halved between 1980 and 1985, before being almost halved again in 1986. In fact, by 1985 oil revenues had fallen to their lowest level since the first OPEC price shock: They went down from $22.5 billion in 1980 to $15.7 billion in 1981 and $14.3 billion in 1982. As a result, the balance of payments surplus shrank from $11.5 billion in 1980 to $168 million in 1981. The current account surplus, on the other hand, halved from 1980 to 1981; from $8.2 billion to $4 billion. Moreover, since 1980 there has been a constant decline in GDP in real terms.(6)

The Libyan regime adopted austerity policies rather than structural reforms as a response to the fiscal crisis. In the early 1980s the regime cut imports; imposed austerity on development budgets, decreased the number of foreign workers, resorted to the non-payment of its debts to foreign contractors; and started to draw on foreign reserves to finance its budget deficits.(7) These policies were, to a major extent, successful. In fact, the Libyan regime was able to survive from an economic standpoint. In 1985 current account surplus was restored, and despite the huge decline in oil earnings in 1986, the deficit was contained at 156 million dollars by the end of 1986, again despite the sharp drop in oil earnings.(8) This was not surprising since with a small population, considerable foreign reserves and, of course, with its oil resources Libya was well placed to withstand the impact of reduced revenues. Hence, from a purely economic standpoint Libya could overcome international economic constraints by imposing more austerity.(9) It was obvious from Col. Qaddafi's speeches that the prevailing perception among government officials was that the crisis was temporary and that with some austerity the Libyan economy could overcome these problems.(10) Then, why, given that the Libyan government was able to overcome the shocks from an economic standpoint, did the Libyan leadership still embark on radical reform? In order to answer this question one also needs to examine the domestic political process.

FROM FINANCIAL TO POLITICAL CRISIS: THE ADOPTION OF ECONOMIC REFORM POLICIES

The social context has been very important for the initiation of reforms. In fact, it was domestic criticism that forced the regime to rethink its earlier policies. The fiscal crisis made life difficult for Libyans. The cutting of imports as a part of the austerity package had negative consequences for the Libyan consumer who had gotten used to imported goods especially after the 1973-74 oil price increases.(11) Starting in 1982 the regime decided to prepare an import budget at the beginning of each year to control the outflows of currency and the growth of consumption. Some items were regarded as 'unnecessary.' The Secretariat of Economy issued its first ordinance in 1982 banning the import of eighty-two categories of goods, including cars for sale, ceramic goods, and silverware. Each year the list was expanded to include other goods that were regarded as 'unnecessary.' Many consumer goods including television sets, furnishings, air conditioners, radios, videos, office equipment, kitchenware, and furniture were added to the 1982 list in the following years.(12) For 'necessary items', on the other hand, the import budget introduced quotas each year. In a country like Libya where almost 70 percent of food and practically all consumer goods were imported, consumers were the hardest hit by the cuts that were made in the import budget.

The virtual collapse of the distribution system for consumer goods and severe shortages of foodstuffs created popular anger. Some protests took clandestine forms, such as arson attacks on state supermarkets.(13) Moreover, most of the political protest was channeled through the formal institutional structure. The General People's Congress (GPC) meetings became a forum for Libyans to criticize the regime's economic policies. The 1987 congress was especially crucial in this respect since in that meeting the delegates openly called for reform.(14) Economic austerity coupled with public discontent, particularly over the conduct of the revolutionary committees(15) and the Libyan involvement in Chad, increased the unpopularity of the regime. It became obvious that Libya was going through a political crisis and the legitimacy of the regime was facing a major challenge.

Pressure from social groups therefore played a decisive role in the initiation of the new policies. Domestic criticism, however, did not automatically lead the regime to announce these policies. In fact, there were diverse views within the state apparatus about how to deal with the economic and political crisis. The conflicting trends that were apparent before the announcement of the reforms in 1988 were manifestations of the internal conflicts. On the one hand, there were revolutionaries who favored the continuing implementation of Qaddafi's ideas as they appeared in the Green Book. On the other hand, there were pro-reformers, who wanted to tackle the weakening economy. The deepening political crisis gave the pro-reformers the upper hand. Yet their impact relied on support from the higher echelons of the state hierarchy. As the criticisms mounted, Qaddafi seemed to realize that it was necessary to extricate the state from responsibility for the failures in the economy. In his speeches he acknowledged the problems and criticized the inefficiencies in the Libyan economy. It was obvious that the Libyan leadership took the criticisms that were made by the delegates at the GPC very seriously. They not only publicly acknowledged the country's difficulties, but also accepted that some of the policies that had been implemented had failed and there was a need to reevaluate earlier policies. Some of the state actors, most importantly Qaddafi himself, came to the conclusion that the stability of the regime was threatened. They wanted economic reforms because economic constraints made it politically inexpedient to continue with earlier policies. The crisis was a shock to the legitimacy of the regime. That is why economic reform went hand in hand with political reform. In fact, even before most of the modifications in economic policy, the regime announced changes that were aimed relaxing its political control. Responding to public discontent, it first decided to curb some of the excesses of the revolutionary committees. In 1988 approximately four hundred political prisoners were released after Qaddafi personally mounted a bulldozer to knock down the walls of the Furnash prison in Tripoli. He also personally supervised the destruction at the public records office of the blacklists containing the names of thousands of Libyans banned from travel abroad. In addition, Libya opened its borders for free travel. These changes finally culminated at the unanimous approval of the "Great Green Charter of Human Rights in the Age of Jamahiriya" at the emergency session of the GPC, that was held in June 1988.(16)

Most of the economic policies that were announced in 1988 were a direct response to the demands that were made at the GPC meetings. Reforms that aimed to privatize retail trade and services and to liberalize foreign trade were called for by the delegates at the GPC. The small-business-oriented nature of the demands were not surprising since before the radicalization of the regime's economic policy in the late 1970s, Libya had a sizable small-business community which was supported by the state. Therefore, the nature of these demands showed how the underlying structural characteristics of Libyan society continued to determine the behavior of political actors.

Another important part of 1988 reform package was Law Number 8 which called for a new form of cooperative ownership of productive enterprises to replace the centralized state ownership in medium- and small-scale industries. This new form of ownership called tashrukiya was, in practice, an arrangement that fell between private and state ownership, in which every worker would share in the capital and profits. Under this system eight percent of a company's turnover was to be handed to the state, with the net profits being divided among shareholders in proportion to their wages.(17) This law allowed, for the first time since 1977, limited private sector investment in the state-dominated economy. The aim of the tashrukiya system was to encourage private participation in service and light industries as a means of overcoming the inefficiencies in these industries.

The 1988 reform program was almost fully implemented. Retail trade and services were privatized. State export-import monopoly was abolished for the majority of consumer goods.(18) In April 1988 the Executive Authority for Partnerships and Small Industries was established to oversee the transfer of control of small enterprises to employees. Consequently the tashrukiya system was immediately implemented in trade and services such as plumbing, hairdressing, car and appliance repairs. Soon mixed-sector ventures started to be established in food, furniture and clothing.

The most important reason for the successful implementation of the new policies was the sense of necessity and urgency felt by the leadership in the face of growing domestic political criticism. As a result of these reforms, consumers benefited. Scarcities ended and lines disappeared. The flow of imports, now resumed after a long period of shortages, built support for the new policies. Yet with the passing of time things became more complicated. The free trade activity and the cutting of state subsidies resulted in spiraling prices which were certainly not appreciated by Libyans whose income in many cases remained the same. The relaxation of controls unleashed corruption and perpetrators were less afraid of being caught. A black market in goods and currency thrived. Another unplanned result of the reform policies was the increase in property and land speculation. On the other hand, a ministry report admitted that production problems in the tashrukiya continued.(19)

By 1989 it was obvious that the number of 'losers' far exceeded the number of 'winners.' It was especially difficult for merchants and businessmen, the real reform winners, to mobilize and collectively articulate their interests. Thus support for reforms soon waned and at the beginning of the 1990s there was mounting criticism of the new policies. Delegates who opposed reforms and criticized their effects used the GPC to express their discontent. At the end, the 1990 Congress adopted a 'revolutionary program.'(20)

THE SECOND PHASE OF REFORM: THE INSTITUTIONAL FRAMEWORK

However, the political opposition did not succeed in reversing any of the policies. The reforms entered a new stage with the adoption of several laws designed to liberalize the Libyan economy. A June 1992 law allowed the establishment of joint-stock companies (sharikah musahimah). On 3 September 1992, the GPC adopted a general privatization law covering private sector involvement in the economy. The legal framework for privatization was reinforced by the adoption of Law No. 1 which governed the establishment of private banks. Finally, in July 1993 the General People's Committee (the cabinet) issued a decree (No. 431-93) allowing the liberalization of the wholesale trade.(21)

In this way the regime started to create the institutional framework within which the private sector could function. The liberalization of the regime of property rights meant that, for the first time since 1977, individual ownership was permitted. Moreover, for the first time since the nationalization of banks in December 1970, the establishment of private banks was allowed.

Besides creating a legal institutional framework for the functioning of the private sector, the regime also sought to decrease the role of the state in the economy. This primarily entailed a sharp cut in state expenditures. Here special emphasis was given to health and education, since they constituted about half of the administrative budget. Qaddafi declared that the state "should rid itself" of these tasks, "except within the acceptable limits which do not involve high costs."(22) The other important initiative to reduce the size of the state was centered on decreasing the number of government employees. Qaddafi told Libyans not to "depend on government employment," as "government employees are the most miserable people of all at the moment." He was mainly referring to the fact that their salaries had not been paid in months.(23) Finally, the regime created a legal framework for divestiture by promulgating a law on the privatization of state enterprises. On 5 May 1993, the General People's Committee issued a resolution on the status of private ownership of public economic enterprises. This resolution specified the bases, regulations, and procedures of ownership of the installations listed in these statues, and mechanisms through which these installations were to be privatized.(24) It also established ownership committees with the task of studying the conditions of each company in preparation for selling it. The principle of transfer of ownership to the people through shares traded on the financial and shares markets was adopted.(25)

Finally, in a televised speech in May 1993 Qaddafi proposed three additional measures. He argued that Libya should consider passing a law providing guarantees for foreign capital investment. In fact, the GPC in its January 1994 meeting adopted a resolution calling for the encouragement of foreign investment especially in industrial projects that require high technological expertise.(26) Secondly, Qaddafi suggested that Libya should encourage mass tourism. Finally, as a response to complaints about exchanging the Libyan dinar into other currencies, Qaddafi proposed that the country should put on its agenda making the Libyan dinar fully convertible. The GPC adopted a resolution in 1994 and listed the conditions necessary to achieve convertibility.

Why, in the face of severe criticism, did the Libyan regime go farther and announce new policies that tried to consolidate the new state strategy? The answer lies within the leadership and state apparatus. The consolidation of reforms came from within the political elite and government economic team. However, their perception of the economic and political situation of Libya was conditioned by several key factors.

First, the international environment became increasingly limiting in the 1990s. The cumulative effects of years of U.S. embargo and the imposition of the UN sanctions started to be felt in the economy.(27) The collapse of the Soviet Union and the end of the Cold War had important consequences for the Middle East in general and Libya in particular. The deterioration of US-Libyan relations came at a time when the U.S. was increasingly recognized as the only superpower. Even before the embargo hit economically, the hostile relations between the two countries created a sense of isolation and vulnerability in Tripoli. After the Lockerbie incident, the involvement of the UN Security Council and the fact that other countries abided by the UN embargo no doubt increased this sense of isolation. As time passed, and as Tripoli's attempts at some kind of reconciliation failed,(28) the Libyan regime felt that its survival was in jeopardy. The economic impact of the embargo helped to deepen the fiscal crisis. Moreover, in the 1990s it became obvious that the downturn in the oil market was not a temporary phenomenon but a sign of changes in the world oil market that were detrimental to the interests of the oil exporting countries.(29) Although the Libyan economy benefited from the windfall earnings resulting from the Gulf crisis, after that it continued to suffer from the effects of fluctuating oil prices.

Second, the GPC continued its criticism of the Libyan economy. Especially disturbing for the delegates were the high cost of living, inadequate housing; non-payment of salaries, the poor state of facilities for health and education, and shortages. These criticisms made it obvious that the earlier policies had become economically and politically unsustainable and, to survive, the regime had to change he course of its economic policy in a more radical way. It could no longer continue with its distributional policies the way it used to. Moreover, its control of the economy was slipping away, because of contraband trade and speculation. In other words, as Leith and Lofchie(30) argued for Ghana, in Libya too the state was 'withering away' and ironically to save it the regime had to shrink the state and encourage some private sector activity in the economy.

In the meantime, the pro-reformers seemed to be getting the upper hand in the government. Qaddafi held a series of televised meetings with economic, finance, oil and water experts to discuss the issues facing the country. In these meetings a very grim picture emerged as far as the economic future of Libya was concerned.(31) This was also a way for the leadership to communicate the message of crisis to Libyans and thus gain their support for the new policies.

THE PROBLEMS OF IMPLEMENTATION

There has been some privatization in the service sector.(32) However, the implementation of the policies that were adopted in the second stage has been much more difficult as it requires a drastic change in the nature and direction of the Libyan economy. There are important constraints on the successful implementation of these reforms.

The first factor is the opposition from social groups. Although there was widespread support for the initiation of the reform policies, this support started to diminish as time passed. Some groups especially became critical of the new policies as they began to see them contrary to their interests and/or ideological beliefs. But what is more important, the opposition to the change in state strategy has become more widespread with the implementation of the second phase of the reform program as the distributional consequences of these policies are far more profound. In fact, the demands made in the 1994 GPC meeting to continue state subsidies and entitlements, and concerns about unemployment illustrated the extent of discontent over the new policies.(33)

Another reason for the difficulty of implementing the reform lies within the state. Although in the 1990s there seems to be a consensus about the new policies, ironically state interests and issues of legitimacy complicate the implementation of reforms to their fullest extent. The political elite is concerned about the possible effects of privatization and fears that these policies can undermine the regime. On the one hand, the distributional effects of market creation and the shrinking of the state can challenge the legitimacy of the regime, which was first and foremost based on the equal distribution of oil rents. In addition, privatization can create alternative sources of power that can challenge the regime. Therefore, this paradox of the necessity and the danger of reform affects the swift implementation of the new policies. The fact that in recent years the regime has been challenged both domestically and from outside further complicates the situation.(34)

The lack of institutional capacity of the state is another factor that affects the implementation process. The state's capacity for economic intervention did not develop well in Libya. This was despite the fact that through public enterprises the Libyan state actively participated in production and market exchange. However, particularly the fiscal capacities that were necessary to mobilize resources domestically, which were crucial in the periods of bust, have been absent. Instead of extracting assets from society in the form of taxes and fees, the Libyan state opted for the privatization of parts of the economy and the shrinking of the state. Nevertheless, these policies also required institutional capacities that were generally lacking in Libya. Effective action by the Libyan state has been constrained by the absence of an extensive and coherent bureaucracy. As a result, the state also lacks the capability to collect information about society. The formulation of economic policy becomes very problematic because of the inadequacy of data on the economy and population.(35) Furthermore, despite the attempts to institutionalize the reforms especially in the second phase, several important institutions, such as the credit and banking system that are crucial to creating and sustaining a market economy, are still not established.

Finally, the constraints that originate from the international arena limit the possibilities of successful reform. In fact, the still-continuing UN embargo has harmed the efforts at economic liberalization. By weakening the currency and increasing the cost of living it contributed to the general worsening of economic conditions in the country. Moreover, the uncertainty created by the embargo decreased the level of confidence of both domestic and international businesses for the stability of Libya. In addition, the continuing volatility of the world oil market contributes to this sense of instability.

Even with 'limited liberalization,' the Libyan regime has faced important challenges in recent years. Creation of markets is a highly political process. As Chaudhry(36) points out, "markets dislocate groups in both the political and economic realm" and create inequalities. Some of these issues have started to come to the forefront in recent years. Problems like the increasing cost of living and rising unemployment have been discussed in the GPC meetings.(37) These problems were publicly acknowledged by Qaddafi in a speech he made in December 1993 in which he stated that the high cost of living and unemployment were among the issues that faced the Libyans.(38) With an estimated population growth rate of 3.7 percent and decreasing revenues, the state has to help create new opportunities for Libyans. On the other hand, the breakdown of the welfare system and the creation of new wealth is very damaging to the regime that has based an important part of its legitimacy on the claims of greater social justice and equality. The weakening of the political formula of the state has made it more vulnerable to challenges. More than usual references to "traitors" and an emphasis on a "shield of loyalty" to the regime in Qaddafi's speeches highlight his concern over these challenges.(39) On the other hand, there have been clear signs in recent years of struggles to dominate state policies. Qaddafi has been trying to strike a balance between the increasingly vocal GPC and groups like the revolutionary committees. Although he has been successful to some extent, it is becoming harder and harder to continue this policy of balancing. One of the things the regime has started doing to contain criticism is to create new institutions to replace the old. The attempts to establish a new administrative structure built on mahallat (commune or neighborhood) is an example of this. In an extraordinary session of the GPC in Sirte in 1992, Qaddafi announced that the regime had decided to divide Libya into mahallat, each with its own budget, executive and legislative powers. These tasks were to be undertaken by a new institution, 'people's commands'. These new administrative units were introduced by Qaddafi as 'small jamahiriyas'.(40) One of the most important reasons for this administrative change was to curtail the powers of the increasingly vocal GPC by concentrating authority in the hands of the mahallat, which Qaddafi regarded as 'a real safety valve.'(41) It also seems that the regime wanted to diffuse the responsibility for the problems of the Libyan economy.(42) The results of these attempts remain to be seen. However it is obvious that the regime is increasingly facing challenges. The paradox for the Libyan leadership, and especially for Qaddafi and his supporters, is that they know they have to liberalize the economy, but if they liberalize it too much and too quickly that could undermine the regime itself.

CONCLUSIONS: THE BROADER IMPLICATIONS OF THE REFORM PROCESS FOR THE LIBYAN POLITICAL ECONOMY

The change in state strategy in Libya from extensive state control of the economy toward encouragement of the role of the private sector can only be understood by examining the interaction between the international and the domestic political economies. In the 1980s and 1990s the international environment presented constraints on Libya and affected the economic policy choices that were made by the Libyan regime. An analysis of the Libyan case is important in demonstrating that the effects of the international arena on economic reform were not limited to the influence of the IMF and the World Bank. Moreover, an analysis of the economic reform process in Libya also showed the importance of international political factors in domestic economic policy making.

Nevertheless, although the external factors were important, the effects of these factors were mitigated through the domestic context. To understand the scope and the nature of the policies and to comprehend, in more detail, the process of their implementation one needs to examine the internal socioeconomic and political environment. As opposed to the prevailing view in the literature,(43) in the Libyan case demands from social groups played a crucial role in the initiation of the reform policies. Society was present from the beginning, not just in the implementation process. Nevertheless, social demands were not automatically translated into policies. The state actors' perception of the crisis and the struggles within the state apparatus were two important variables that influenced the regime's response. The demands of the social groups were limited to what I call small-business-oriented reforms. The GPC never advocated policies that would drastically decrease the role of the state in the economy. In fact, the delegates routinely called for the continuation of state subsidies and services. The impetus for the second phase of reforms, which aimed at a more structural transformation of the Libyan economy, came from the state. However, the decision to launch these policies was affected by domestic criticism of the regime's policies. Therefore, the economic reforms in Libya were a result of a political process that required constant negotiations between the state and society.(44)

Another important aspect of the Libyan economic reform process was that the Libyan leadership responded to domestic demands. This outcome is all the more surprising as it goes against the argument that the rentier states are autonomous in relation to their societies. But the Libyan state proved responsive to social demands. It seems that there is a logic in rentier states that establishes a special relationship between the state and society that creates this responsiveness. In these states the legitimacy of the regime and its survival depend on their ability to distribute the oil rents. When this ability of the Libyan regime was hampered, it became open to challenges from the society and its survival was in jeopardy. In order to survive the crisis the regime felt the need to adopt a new set of policies.

The role played by the GPC throughout the reform process also raises questions about the institutional context of economic policy making in Libya. This very institution, which was mainly intended to coopt independent political action and to consolidate power in Qaddafi's hands, actually worked, on this occasion, to translate popular discontent into concrete programs of action within a reasonably deliberative process. Of course it was especially Qaddafi and the top leadership who set the framework for legislative and executive decisions and there were limits to the criticism that could be made in the congresses. However, during this period Libyans extensively and, most of the them, successfully used public institutions to influence the decision making process. Despite its reputation as an institution that rubber stamps the ruling elite's decisions, the GPC to some extent became a forum for Libyans who were dissatisfied with the way things were. The demands for reform were routinely articulated in the meetings of the Congress. Moreover, the groups that opposed the whole idea of reform or just parts of it also used the GPC as a forum to voice their opposition.

The extent of participation of the GPC in the policy making process during this period was exceptional.(45) The reason for this was the nature of the issues at hand. The issues of economic well-being were felt directly by the Libyan people and the population felt strongly about them. They constituted the basis of the 'social contract' between the regime and the Libyan society. The distribution of declining oil rents evoked criticism of the state policies. The revenue slump signified the vulnerabilities of the Libyan regime. On the one hand, the rentier nature of the Libyan state made it difficult for the regime to cope with the economic and political crisis. On the other hand, the implementation of economic reforms has been hampered.

NOTES

1. J. Davis, Libyan Politics: Tribe and Revolution (Berkeley, University of California Press, 1987).

2. The new regime was hostile toward big business, which it regarded as 'exploitative'. The Revolutionary Command Council (RCC) made it clear from the beginning that it was the 'non-exploitative capitalists' that the regime would tolerate and encourage to develop. For more on this period see J.A. Allan, Libya: The Experience of Oil (Boulder, CO., Westview Press, 1981); L. Anderson, The State and Social Transformation in Tunisia and Libya, 18301980 (Princeton, Princeton University Press, 1986); M. Deeb and M.J. Deeb, Libya Since the Revolution: Aspects of Social and Economic Development (NY: Praeger, 1982); R. Hinnebusch, 'Charisma, Revolution, and State Formation: Qaddafi and Libya,' Third World Quarterly, Vol. 6, No. 1 (January 1984), pp. 59-73; R. First, Libya: The Elusive Revolution (Harmondsworth, Penguin, 1975).

3. The new political structure was composed of 'people's congresses' and 'people's committees'. The centerpiece of this system is the General People's Congress (al-mu'tamar al-sha'ab al-'am) (GPC), which is a national representative body.

4. Despite the total control of the economy by the state, there were areas where private businesses continued to function. Most of these areas were, however, limited to non-Libyans. First, Libya relied on foreign participation in its oil sector. Second, most of the projects were carried out by foreign private firms. Third, in the agricultural sector small private firms were allowed to exist. Fourth, some small businesses continued to function especially by employing foreign labor. Finally, some Libyans 'exited' from the state-controlled economy to the black market.

5. In 1980 oil and natural gas constituted approximately 65 percent of the real GDP and about 95 percent of Libya's oil export revenues.

6. In the period between 1980-1986 GDP declined from $35,500 to $24,000 and average GDP per capita fell from $10,900 in 1980 to $6,404 in 1986. In 1981 alone the real GDP dropped 18 percent.

7. See M. B. Altunisik, "External vs. Internal Debate Revisited: The Political Economy of Economic Reform Policies in Libya (1987-1993)", Ph.D. Dissertation (Boston University, 1995), pp. 134-141.

8. IMF, Financial Statistics, Sept. 1987.

9. The Libyan regime preferred not to barrow in significant amounts from the international banking system to finance its current account deficit.

10. This is evident in Qaddafi's address to the GPC which he made after the sharp decrease in oil prices in 1986: "Analysts believe that oil cannot be dispensed with and (oil prices) will not slump continuously. They will reach a certain level and they will start to rise again." Foreign Broadcast Information Service, Daily Report-Near East and South Asia (FBIS-NES), 5 March 1986, p. Q 11. In the meantime Qaddafi asked Libyans to prepare themselves for a further period of austerity and to learn to live without luxuries: "Every family plans how to manage the situation. The important thing is we will not be hungry, thirsty, without clothing until the end of the oil problem, when the situation improves. It means it is possible, in a simple way, to overcome any crisis. No matter how much we lost in price drop, in my opinion the loss was only in terms of luxury and extravagant items we used to buy." FBIS-NES, 5 March 1986, p. Q. 15.

11. Ownership of consumer durables had been rising very fast in Libya in the 1970s. Most of these goods were imported.

12. Economist Intelligence Unit, Country Report: Libya, 3rd. Quarter, 1983, p. 15; S. Ghanem, 'Changing Planning Policies in Libya,' in M.M. Buru, S. Ghanem, and K.S. McLachlan (eds.) Planning and Development in Modern Libya (NY: St. Martin's Press, 1985).

13. G. Henderson, "Redefining Revolution," Africa Report, vol 29, (November-December 1984), p. 38.

14. Middle East Economic Digest (MEED), 14 March 1987, p. 17; Keesing's Record of World Events, Vol. 33 (June 1987), p. 35220.

15. Revolutionary Committees were established under Qaddafi's direct control in 1977 as 'vanguards of the revolution' and charged with propagating its ideals. Since then they have increased their power more and more through intimidation and terror. See O. El-Fathaly and M. Palmer, "The Transformation of Mass Political Institutions in Revolutionary Libya," in G. Joffe and K. McLachlan (eds.), Social and Economic Development of Libya (Boulder, CO., Westview Press, 1982); D. Vandewella, "The Libyan Revolution After Twenty Years, Part I: Evaluating the Jamahiriya," Field Staff Reports, No. 2 (1990/1991), pp. 2-3.

16. For more on political reform policies see D. Vandewalle, "Qadhafi's 'Perestroika': Economic and Political Liberalization in Libya," Middle East Journal, Vol. 45 (1991), pp. 216-31.

17. FBIS-NES, 6 September 1988, p. 17.

18. The state, however, continued to import several consumer and non-consumer goods. The government decrees in 1989 stated that gold, tobacco, medicine, insecticides, petroleum products and some foodstuffs remained state import monopolies. The 1989 budget set aide 150 million Libyan dinars for imports by individuals and partnerships. The amount of money that merchants could receive for imports was restricted to $10,000 per year.

19. The report, prepared in 1990, stated that industrial production in the light industry sector was static in the first two months of 1989 and sales fell 5 percent. The Reuters Library Report, 7 March 1990. The report, prepared in 1990, stated that industrial production in the light industry sector was static in the first two months of 1989 and sales fell 5 percent. The Reuters Library Report, 7 March 1990.

20. G. I. Simons, Libya: The Struggle for Survival (NY, St. Martin's Press, 1993) p. 219.

21. MEED, 18 September 1992, p. 13; FBIS-NES, 24 March 1993, pp. 11-12; BBC Monitoring, Weekly Economic Report, Part 4, 2 July 1993.

22. MEED, 19 March 1993, p. 14.

23. FBIS-NES, 10 May 1993, p. 24.

24. FBIS-NES, 7 May 1993, p. 18.

25. From an interview with 'Abd-al-Majid al Qu'ud, Secretary of the General's People's Committee, in Al-Musawwar (Cairo), 12 August 1994, reproduced in FBIS-NES, 16 August 1994, p.21.

26. FBIS-NES, 10 May 1993, p. 25 and FBIS-NES, 2 February 1994, p. 20.

27. In March 1982 the U.S. declared an embargo on Libya. The Reagan Administration banned imports of Libyan oil to the U.S. and halted all exports to Libya other than food and medical supplies. The embargo was expanded in 1986. In January the Reagan Administration ordered the freezing of Libyan assets in the U.S. In April 1986 Washington launched a series of air raids against targets in Tripoli and Benghazi. In June 1986 the U.S. government banned the export to third countries of goods and technology destined for use in the Libyan oil industry. With the expansion of the embargo in 1986 all U.S. companies withdrew from Libya with their assets being frozen by the Libyan authorities. In the 1990s the conflict between the U.S. and Libya escalated. Moreover, as a result of the changing international circumstances of the post-Cold War era, the U.S. managed to internationalize the conflict. In April 1992, the UN Security Council, led by the U.S., adopted Resolutions 731 and 748 which imposed a ban on civil aviation, a worldwide embargo on arms purchases and a reduction in Libyan diplomatic missions abroad. On 11 November 1993, the UN Security Council voted by eleven to zero to tighten the sanctions against Libya (Resolution 883). For more on US-Libyan relations see M. El-Warfally, Imagery and Ideology in U.S. Policy Toward Libya, 1969-1982 (Pittsburgh, University of Pittsburgh, 1988) and G. Simons, Libya: The Struggle for Survival.

28. See M. B. Altunisik, pp. 170-75.

29. For more on the changes in the world oil market see D. Yergin, The Prize: The Epic Quest for Oil, Money and Power (NY, Simon and Schuster, 1992).

30. C. Leith and M. Lofchie, "The Political Economy of Structural Adjustment in Ghana," in R. Bates and A. Krueger (eds.), Political and Economic Interactions in Economic Policy Reform: Evidence From Eight Countries (Cambridge, MA, Blackwell, 1993).

31. FBIS-NES, 2 March 1993, pp. 15-21; 10 March 1993, pp. 17-21; 12 March 1993, pp. 14-19.

32. For example, the ownership of Tripoli's two largest hospitals, al-Jalaa and al-Fateh, was transferred to a company whose shares were held by the hospital staff. MEED, 13 November 1992, p. 67.

33. FBIS-NES, 2 February 1994, pp. 21-29.

34. In recent years there have been several rumors about internal challenges to the regime. The most serious among them was the report of an armed rebellion that took place at a military base in the Bani Walid area and spread to the nearby town of Misratah in the late 1993. See FBIS-NES, 29 March 1993, p. 20; The Middle East, December 1993, p. 16. The regime is especially sensitive about the challenge of political Islam given the increasing power of such movements in the region. So far a dual track policy has been implemented to tackle the issue. In addition to coercive measures against the suspected Islamists, the political elite has tried to appease its religious opponents. On April 2 1993, in a televised address Qaddafi called for stricter implementation of the shariah. The GPC, in its January 1994 session, approved the new shariah laws. FBIS-NES, 18 February 1994, p. 9.

35. As an EIU Country Report states "privatization of factories and workshops is hampered by the absence of basic information on the performance of a particular enterprise such as, for instance, accounts, production costs, production profitability, resource allocation and market conditions." EIU, Country Report, 4th Quarter, 1993, p. 18.

36. K. Chaudhry, "The Myths of the Market and the Common History of Late Developers," Politics and Society, Vol. 21, No. 3 (September 1993), p. 255.

37. See, for instance, FBIS-NES, 2 February 1994, p. 21.

38. FBIS-NES, 12 December 1994, p. 25.

39. See, for instance, his speeches in Misratah on 2 February 1994 in FBIS-NES and in al-Zintan on 3 August 1994 in FBIS-NES, 4 August 1994, pp. 12-14.

40. On the new administrative structure see FBIS-NES, 20 November 1992, pp. 15-18 and 7 September 1994, p. 34.

41. FBIS-NES, 16 September 1994, p. 16.

42. Qaddafi stated that "the people's command in a locality is the one that defines the economic activities and how the loans are allocated" and, therefore, will be held responsible "even for price rises." FBIS-NES, 12 December 1994, p. 18 and 25.

43. See, for instance, the edited volume by J. Nelson, Economic Crisis and Policy Choice: The Politics of Adjustment in the Third World (Princeton, Princeton University Press, 1990).

44. Within this context an analysis of the Libyan economic reform process raises important questions about the nature of the Libyan state and its relation to society. On the one hand, the formation and, later, the capacities of the Libyan state challenge the basic definition of the state. On the other hand, the Libyan case shows that the boundary between the state and society is not very rigid. The GPC and the revolutionary committees are two institutions that illustrate, as Timothy Mitchell puts it, how "elusive, porous, and mobile" that boundary is. T. Mitchell, "The Limits of the State: Beyond Statist Approaches and Their Critics," American Political Science Review, Vol. 85, No. 1 (1991) pp. 77-96.

45. The same process is not necessarily at work on other issues, where the elites can afford to ignore the popular will.

Meliha B. Altunisik is an assistant professor in the Department of International Relations at the Middle East Technical University, Ankara, Turkey.