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WEEKLY NEWSLETTER
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Libya
Index
The economic base for Libya's revolution has been its oil
revenues. However, Libya's petroleum reserves were small compared
with those of other major Arab petroleum-producing states. As a
consequence, Libya was more ready to ration output in order to
conserve its natural wealth and less responsive to moderating its
price-rise demands than the other countries. Petroleum was seen
both as a means of financing the economic and social development of
a woefully underdeveloped country and as a political weapon to
brandish in the Arab struggle against Israel.
The increase in production that followed the 1969 revolution
was accompanied by Libyan demands for higher petroleum prices, a
greater share of revenues, and more control over the development of
the country's petroleum industry
(see Hydrocarbons and Mining
, ch.
3). Foreign petroleum companies agreed to a price hike of more than
three times the going rate (from US$0.90 to US$3.45 per barrel)
early in 1971. In December the Libyan government suddenly
nationalized the holdings of British Petroleum in Libya and
withdrew funds amounting to approximately US$550 million invested
in British banks as a result of a foreign policy dispute. British
Petroleum rejected as inadequate a Libyan offer of compensation,
and the British treasury banned Libya from participation in the
sterling area. In 1973 the Libyan government announced the
nationalization of a controlling interest in all other petroleum
companies operating in the country. This step gave Libya control of
about 60 percent of its domestic oil production by early 1974, a
figure that subsequently rose to 70 percent. Total nationalization
was out of the question, given the need for foreign expertise and
funds in oil exploration, production, and distribution.
Insisting on the continued use of petroleum as leverage against
Israel and its supporters in the West, Libya strongly supported
formation of the Organization of Petroleum Exporting Countries
(OPEC) in 1973, and Libyan militancy was partially responsible for
OPEC measures to raise oil prices, impose embargoes, and gain
control of production. As a consequence of such policies, Libya's
oil production declined by half between 1970 and 1974, while
revenues from oil exports more than quadrupled. Production
continued to fall, bottoming out at an eleven-year low in 1975 at
a time when the government was preparing to invest large amounts of
petroleum revenues in other sectors of the economy. Thereafter,
output stabilized at about 2 million barrels per day. Production
and hence income declined yet again in the early 1980s because of
the high price of Libyan crude and because recession in the
industrialized world reduced demand for oil from all sources.
Libya's Five-Year Economic and Social Transformation Plan
(1976-80), announced in 1975, was programmed to pump US$20 billion
into the development of a broad range of economic activities that
would continue to provide income after Libya's petroleum reserves
had been exhausted. Agriculture was slated to receive the largest
share of aid in an effort to make Libya self-sufficient in food and
to help keep the rural population on the land
(see Agriculture
, ch.
3). Industry, of which there was little before the revolution, also
received a significant amount of funding in the first development
plan as well as in the second, launched in 1981
(see Industry
, ch.
3).
Libya continued to be plagued with a shortage of skilled labor,
which had to be imported along with a broad range of consumer
goods, both paid for with petroleum income. This same oil revenue,
however, made possible a substantial improvement in the lives of
virtually all Libyans. During the 1970s, the government succeeded
in making major improvements in the general welfare of its
citizens. By the 1980s Libyans enjoyed much improved housing and
education, comprehensive social welfare services, and general
standards of health that were among the highest in Africa
(see Education;
Health and Welfare, ch. 2).
Data as of 1987
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