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WEEKLY NEWSLETTER
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Libya
Index
An oil rig in the Libyan desert
THE LIBYAN ECONOMY is unique in North Africa. Whereas Algeria,
Egypt, Morocco, and Tunisia all have large populations,
considerable agricultural potential, and well-established
industrial bases, Libya possesses few of these advantages. It does
however, have abundant energy resources--primarily an attractive
type of light low-sulfur crude oil as well as some natural gas.
Given the country's small population (3.6 million in 1984) and
considerable petroleum-derived income, the Libyan economy has more
in common with those of the small oil-exporting Persian Gulf states
than with those of its North African neighbors.
Because of Libya's great dependence on oil revenues, the
general level of the Libyan economy is closely related to the
health of the petrochemical industry. Despite massive investment in
agriculture and nonpetroleum-related industry, the percentage of
Libya's gross domestic product
(GDP--see Glossary) derived from oil
has remained fairly constant since the early 1970s, fluctuating
between 50 and 60 percent until 1982, when declining oil revenues
caused it to drop below 50 percent. Since Muammar al Qadhafi and
his associates came to power in 1969, reducing Libya's dependence
on oil has been the government's major economic policy objective.
Its inability to achieve this goal stems from ill-advised policy
decisions as well as the many obstacles to economic diversification
in a land lacking in both basic infrastructure and water resources.
Diversification is an important issue because at current rates
of production, Libyan oil reserves are not expected to last beyond
the second decade of the next century. Thus, the long-term health
of the Libyan economy hinges on developing a self-sustaining
nonpetroleum sector. Otherwise, once oil reserves are depleted,
Libya will become as poor as it was before its current oil boom.
Libya's postindependence economic progress can be divided into
four periods. The first period began with Libya's gaining of
independence in 1951, included the discovery of oil in 1957, and
ended in 1961. The second period dates from 1961, when oil exports
moved the country into the forefront of the world's economies. The
September 1, 1969, military coup d'état marked the beginninng of
the third period, a period that saw Libya change from a Westernoriented capitalist country into a strongly nationalist, antiWestern , socialist state. This period also witnessed the
government's growing intervention in the economy, which was largely
financed by the booming oil revenues of the 1970s. Falling world
oil prices in the early 1980s ushered in the fourth phase of
Libya's economic development. The falling prices have dramatically
reduced government revenue and caused a serious decline in ecomomic
activity.
The economic change between independence and the 1980s was
dramatic. In 1951, on the eve of independence, Libya,
underdeveloped and backward, was characterized by the United
Nations (UN) as perhaps the world's poorest country. Experts
predicted that the country would have to be supported for years by
international grants-in-aid while it organized itself to try to
live within its own meager means. However, in less than 25 years,
Libya had turned into a rapidly developing country with accumulated
net gold and foreign-exchange reserves equivalent to upward of US$4
billion and an estimated annual income from oil revenues of between
US$6 and US$8 billion. Although Libya suffered few balance-of-
payments problems, it was beginning to be bothered by inflation.
The country seemed to have adequate funds at its disposal, however.
Data as of 1987
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