JAN. 22, 2015
Wider Chaos Threatens as Fighters Seize Branch of Libya's Central Bank
By DAVID D. KIRKPATRICK
BAYDA, Libya -- The battle for control of Libya threatened to break open its central bank on Thursday as fighters with one of the country's two warring factions seized control of its Benghazi branch, risking an armed scramble for its gold reserves that could cripple the last functioning institution in the country.
The Central Bank of Libya is the great prize at the center of the escalating armed conflicts that have consumed the country since the overthrow of Col. Muammar el-Qaddafi more than three years ago. It has also been the main shield preventing Libya's descent into utter chaos and deprivation.
The central bank is the repository for Libya's oil revenue and holds nearly $100 billion in foreign reserves. A desire for a share of that wealth has helped motivate the violent competition among an array of militias fighting for money and influence. They have carved the country into warring fiefs, destroyed its two largest airports, bombed and shelled civilian neighborhoods and burned down refineries and oil depots -- driving the oil output that is the mainstay of Libya's economy down to less than 250,000 barrels a day from as much as 1.7 million a day at its peak.
As a result, Libyans across the country endure electricity blackouts for hours a day, long lines for scarce fuel at gas stations, and shortages of cooking oil despite its vast energy resources.
But the central bank has sought to remain neutral and above the fray. It has continued to pay for fuel and food subsidies as well as the salaries of bureaucrats, doctors, teachers, local officials and millions of other public employees -- often regardless of whether they showed up for work.
By financing the budgets of the Interior and Defense Ministries, the same bank has even provided salaries and supplies for thousands of fighters battling one another from all sides of the struggle. But its continued distribution of paychecks and subsidies has helped communities and families across the country stay afloat despite the collapse of most other economic activity, even maintaining a semblance of order.
The bank's neutrality, though, came under increasing strain as the warring factions established rival national governments, one based in Tripoli in the west and the other in the eastern cities of Tobruk and Bayda. The central bank has two facilities, a headquarters in Tripoli and an eastern branch in Benghazi.
Its most direct challenge has come from the Tobruk-Bayda government. It includes a recently elected Parliament, but it is under the de facto control of Gen. Khalifa Hifter, who defected from Colonel Qaddafi's military and last year announced a military takeover pledging to rid the country of violent extremists.
The Tobruk-Bayda government has sought since October to replace the central bank's chairman, Sadik el-Kaber, a veteran banker, in order to take control of the bank's assets. But Mr. Kaber has refused to resign. He has kept the bank's headquarters in Tripoli, the nominal capital, which is controlled by a rival coalition of moderate Islamists, extremists and militias from the coastal city of Misurata.
Mr. Kaber has pleaded with both sides to respect the bank's neutrality and keep it above politics, to safeguard Libya's wealth. Those arguments appear to have won important support among Western nations, which have a critical voice in the bank's future because much of the bank's foreign reserves are held in Western financial centers.
Mr. Kaber flew to Washington last month for meetings with American and British diplomats, as well as with officials from the White House and the State and Treasury Departments, signaling that the West continued to regard him as the person in charge despite the Tobruk-Bayda government's efforts to replace him. Its candidate to replace Mr. Kaber -- regarded by his backers as the legitimate central bank chairman -- visited Washington this month but was not accorded the same status, officials here say.
The nature of the challenge changed late Wednesday night, when some of General Hifter's fighters invaded the bank's building in Benghazi, near the front lines of a continuing fight with local Islamist militants.
By Thursday morning, the fighters had posted video online that showed them in control of the premises but refraining, so far, from breaking into the vaults.
"We are the youth of the naval base, and we are here to guard the bank," a fighter in a camouflage uniform is heard to say in a video, as he leads the camera on a tour of the bank and its flooded basement. Gunfire is audible in the background, apparently coming from the streets outside.
Pointing proudly to a parked white Toyota Camry and a closed safe numbered 835, the fighter in the video says, "There is more inside, but we don't want to enter, so they don't call us thieves."
Some leaders on each side of the conflict in Libya agreed to a conditional United Nations-brokered cease-fire last Friday in Geneva, but the fighting has gone on. The Tripoli faction said Thursday that it would no longer take part in the talks.
"There has been an escalation of fighting in the past two days by troops of the wanted Khalifa Hifter," the Tripoli government said in a statement. "This escalation peaked today with the storming of a sovereign institution, the central bank in Benghazi."
Mohamed Hejazi, a spokesman for General Hifter's forces, confirmed Thursday that they had taken control of the bank, and said they had also seized "80 percent" of Benghazi's seaport.
Referring to the general's forces as "the national army of Libya," Mr. Hejazi called its opponents "terrorists." "It is our duty to secure the central bank until we rid the city of those terrorists," he said, adding that the Tobruk-Bayda government no longer considered Mr. Kaber the bank's legitimate chairman.
Col. Farraj al-Barasi, a commander of General Hifter's forces in Benghazi, told Reuters that the forces were forming a committee to decide what to do with the bank's money. "We've moved out the technical equipment," he told the news agency. "The cash is still in the safes."
The seizure of the Benghazi branch raised immediate fears that militias in Tripoli might seek to seize the bank's assets there.
In a statement, the United Nations Support Mission in Libya condemned "the reported armed attack against the Central Bank branch in Benghazi" and called for "an independent commission of inquiry" to help clarify the circumstances.
Officials in Washington said in recent days that they met with Mr. Kaber because they were focused on protecting the bank.
"We want very much to bring the conflict to a close, and to do everything we can to help the Libyans preserve the patrimony of the Libyan bank and the Libyan people," said a senior administration official, speaking on the condition of anonymity to discuss delicate diplomacy. "We want their money to be intact after the conflict, so that they can rebuild their country."
News of the seizure in Benghazi prompted a fall in the value of the Libyan currency, which traded at 2 dinars to the dollar, compared with 1.8 before.
The conflict in Libya had already posed a serious threat to the country's assets. In a statement last week, the central bank warned that Libya had brought in only 21 billion dinars in revenue last year, almost all of it from oil sales -- a figure far short of the country's projected budget of 57 billion dinars, most of it for public subsidies and wages.
The bank said the government would have to cut budgets for diplomatic missions and scholarships for Libyans studying abroad, with further austerity measures to come. The Tobruk-Bayda government has taken out large loans from commercial banks to finance its operations.
In a statement on Thursday, the central bank condemned the seizure of the Benghazi branch as "a heinous crime" and warned of "dangerous consequences that it could bring at home and abroad."
The bank called the attack "a dangerous escalation that endangers the fortunes and livelihood of the Libyan people and threatens to bring down the last defense of the Libyan state."
"The bank had worked very hard to stay away from any political disagreements and to remain an institution for all Libyans and all of Libya," the statement continued, and it urged all sides "to go to the dialogue table to negotiate, because that is the only way to steer Libya to safe shores."
Suliman Ali Zway contributed reporting.