The government's balance-of-payments statement, which has been prepared annually by the Central Bank, has provided a shorthand presentation of Libya's economic relations with the rest of the world. Although balance-of-payments statements generally may be arranged in different ways to meet different requirements, they frequently have been presented in terms of a current account that included the exchange of goods and services and transfers (donations) a capital account that reflected movement of direct investment, government borrowing and lending, and trade financing and a reserves account showing whether monetary institutions have on balance acquired or paid out foreign currencies in the other accounts. The Libyan payments balance has been presented according to that formula (see table 8, Appendix).

The balance-of-payments statements issued between 1960 and 1977 spelled out in dramatic fashion Libya's meteoric transition from poverty to wealth. In 1960 exports (mostly agricultural) reached their then-customary total of less than the equivalent of US$10 million. Imports totaled US$177 million. The result was an unfavorable trade balance, to which was added a negative balance on the service account. The combination was barely offset by a large item for oil company investment and by sizable grant aid from Britain, the UN, the United States, and Italy. Capital movements were minimally favorable on balance.

By 1963 the payments picture was already changing rapidly. Although imports had increased appreciably, exports had outstripped them, providing a solidly favorable trade balance for the first time in the country's history. Government services and investment income (mainly oil company profits) were approximately in balance, but other services (mainly expenditures abroad by the oil companies connected with their Libyan operations) were increasing rapidly, and goods and services showed a small debit balance. This was just about offset by transfers (gifts and contributions from abroad), and the total current account was in balance. The capital account showed a credit, and the exchange reserves rose by US$27 million.

The upward trend continued throughout the 1970s except for 1973, 1975, and 1978, when the overall balance of payments was in deficit. The balance of payments has been heavily dependent on oil exports and public sector imports, and in each of those three years increases in imports relative to exports pushed the overall balance into deficit. Nevertheless, Libya recorded its largest balance-of- payments surplus in 1980, when it reported a net gain in foreign reserves of over US$6.7 billion.

Since 1980, however, declining oil export revenues have pushed the overall balance into a sustained deficit, as net changes in reserves for 1981 through 1984 were all negative. In general, Libya's trade balance has remained solidly positive because oil revenues, even in the 1980s, have been sufficient to cover imports of merchandise. The principal drain on Libya's balance of payments and the source of much of its external p 1000 payments difficulties during the early and mid-1980s ÍÍÍÍÍÍÍÍhave been the large deficits Libya has experienced in its trade in services. The major components of this "invisible trade" were payments to foreign consultants and contractors, as well as to the resident foreign workers in Libya, who customarily remitted large portions of their salaries to their home countries.

In response to its deteriorating balance-of-payments situation in the 1980s, Libya has used several strategies. Foremost has been the drawing down on its substantial reserves of foreign exchange built up during the 1970s. Thus, other than for gold reserves (which have remained fairly stable), Libya's total foreign exchange reserves (including Specail Drawing Rights (SDRs)--see Glossary, and its deposits with the International Monetary Fund (IMF)--see Glossary) declined from US$13.1 billion in 1980 to US$9 billion in 1981, US$7 billion in 1982, US$5.2 billion in 1983, and US$3.6 billion in 1984. Despite this drastic decline, in 1984 Libya's reserves still afforded it an estimated 5.3 months of import coverage, a figure well above the average for comparable highincome oil exporters.

Libya has also taken steps to reduce remittances by foreign workers. In the 1982-83 period, foreigners comprised about 47 percent of total productive manpower. In 1984, however, the government reduced from 90 to 75 percent the wages that foreign workers were permitted to repatriate. This action, combined with the worsening economic climate in Libya, sparked a flight of foreign workers. The total number dropped from 560,000 in 1983 to perhaps 300,000 in mid-1984. In 1985 the government resorted to coercion, forcibly expelling many remaining workers. In August and September, more than 30,000 Tunisians and about 20,000 Egyptians were expelled. Smaller numbers of workers from Mauritania, Mali, and Niger were also forced to leave. By 1986 further expulsions had dropped the number of foreigners working in Libya to fewer than 200,000.

The final method used by the government to reduce its service trade deficit has been to delay payments to contractors and to induce them to accept barter arrangements. By late 1986, Libya had fallen more than US$2 billion behind in its payments to contractors. In an effort to meet its obligations without disbursing its valuable foreign exchange, Libya has encouraged its creditors to accept oil rather than hard currency in return for their services. Although many debts were settled this way from 1982 through 1985, the sharp drop in oil prices in early 1986 ended such arrangements. At that point, the Libyans refused to adjust their prices to world market levels--resulting in a 30-percent overvaluation of their oil in relation to its price on the open market.

Stringent exchange controls have been in effect since the 1969 coup d'état in an effort to stem capital outflows resulting from private sector pessimism about investment opportunities in an avowedly socialist-nationalist-revolutionary state. The exchange controls were administered by the Central Bank. Since 1979 most all imports have been under the control of sixty-two public corporations, and import licenses no longer have been issued to private companies. The only imports not directly under state control have been made by contractors, but all imports from Israel and South Africa have been prohibited.

Since the 1969 coup, residents have been allowed specific amounts of foreign exchange each year for personal commitments abroad (excluding family remittances), foreign education, overseas travel (pilgrims to Mecca were allowed an additional sum), and business travel. In addition, the government specified that travel fares must be paid in Libyan currency. Temporary residents could take out no more foreign currency and travelers' checks than they had declared to customs officials on their entry into the country.

For practical purposes, most gainfully employed nonresidents were allowed to maintain nonresident accounts in loca 699 l banks into which could be deposited the compensation for their gainful employment and interest accrued on such deposits. Withdrawals for remittance abroad might be drawn against such deposits up to 75 percent of net salary each month. Foreign contractors working in Libya under their own names had to maintain "special resident accounts," into which the funds with which they entered the country and the proceeds of their professional activities in Libya had to be deposited and against which withdrawals might be made with approval of the Central Bank. Profits and dividends could be transferred freely. Blocked accounts could be withdrawn for local or foreign use up to limited amounts during the first five years' duration of such account after five years the deposit could be withdrawn in full.

Data as of 1987