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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 poor391 orest 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