Libya Takes the Long Road to the Free Market

Among the Roman mosaics, prehistoric flint tools, Islamic and Phoenician artefacts in the Libyan national museum in Tripoli, a battered Volkswagen Beetle strikes an incongruous note - until you notice it is the car driven by the young Muammar Gadafy before he burst onto the world stage when he and his fellow revolutionary "free officers" overthrew the monarchy in 1969.

"This vehicle is a special part of our history," explains a poster above the bizarre, slightly rusty exhibit. "It embodies simplicity in confronting the Mercedes-Benz car, the incarnation of distant haughtiness and false arrogance."

Gadafy, now a grizzled 65, travels more stylishly these days, but Libyans still refer to him simply as "the Leader," without the rank of "colonel" that sticks abroad.

Outside the museum he dominates his country's life, with huge posters and slogans everywhere hailing his wisdom. In the last few days he has been starring in the 30th anniversary celebrations of the declaration of people's rule - and the Jamahiriya - the "state of the masses" he insists is superior to the "fraud" of western-style representative democracy, as his Green Book explains.

But change has been evident in recent years, starting in 1999 when Gadafy surrendered the Lockerbie bombing suspects and paid $2.7bn (£1.4bn) in compensation to its 270 victims. Then, shaken by the war in Iraq, he gave up his weapons of mass destruction to ward off regime change, Baghdad-style. It has proved a good deal.

US-based consultants are training Libyan managers and economists to implement a national development strategy drawn up by a professor from Harvard business school. Competitiveness and entrepreneurship are the key themes. MBAs and spreadsheets have replaced the Semtex and Kalashnikovs once associated with a veteran of Washington's state terrorism blacklist, even if the old revolutionary rhetoric is still being used.

Tourism is growing, but there is only one five-star hotel in Tripoli, most of the rest dating back to the boom years of the 70s, with decor and (strictly alcohol-free) ambience to match. The handful of ATMs in the capital are not always able to dispense cash. There is much sensible emphasis on diversification but there are also big plans to expand oil and gas production, the main source of government revenue.

Much hinges on plans to expand the private sector, reduce bureaucracy and overhaul complex tax, customs and financial regulations that have limited foreign investment.

From a low base, expectations of progress are growing though most Libyans accept this is likely to be gradual. "Al-hamdulillah" (Thank God) is a common reply to questions about standards of living. The educated and upwardly mobile are less patient. "Libya has changed a lot, but our generation wants much more," said a twentysomething accountant with a private company. All agree that the turning point was the lifting of "the siege" - the UN and American sanctions imposed to force the Lockerbie handover and an end to sponsorship of terrorism, though these were never as onerous as those suffered by Iraq.

According to one optimistic interpretation, Libya's years of isolation have given it advantages as it rejoins the world. "Maybe the embargo was a blessing in disguise. Now we can learn from the mistakes of others," argued Nasreen Adham, returning from the UK to an environment where lucrative private business opportunities co-exist with efforts to modernise the rickety national infrastructure.

It is hard to measure the impact of change: one recent proposal called for a quadrupling of salaries in the bloated public sector, though if implemented it is likely to be cancelled out by cuts in state subsidies. No-one knows the effect of demands for greater transparency, though one Tripoli landlord demanded a higher rent of a foreign client after realising he might have to pay tax on the income.

No talk of the future is complete without mention of Seif al-Islam, the Leader's best-known son, who uses the Gadafy Foundation to promote economic, educational and media reform. He is behind Libya FM, a new radio station offering lighter fare than the readings from the Green Book and turgid monologues that are the staples of the state media. That the official outlets are rendered in any case irrelevant by free access to the Internet and satellite TV channels such as Al-Jazeera is one of the most fascinating - and paradoxical - elements of the current situation.

"Seif is better known abroad than at home, and he may or may not be the dauphin," says a western diplomat. "But I don't think there's a vacancy. The Leader is well preserved and lives an austere life style. I think he's there for a while unless someone bumps him off, which is difficult to do."

Ashour Shamis, a veteran London-based Libyan exile, agrees. "Gadafy understands that he has to play new tunes and his son is a good instrument. But that doesn't mean he is ready or willing to dismantle everything that he has built up for the last 30 years."

Public talk of succession is not welcome and there are hints about the need to keep the old guard happy. Shukri Ghanem, head of the National Oil Corporation, made great strides as a reformist, technocratic prime minister, but has been replaced by a figure seen as less threatening to conservatives and vested interests. "I don't know why westerners are so interested in this question," said Tripoli businesswoman Ibtisam Bin Amer. "I don't think Libyans worry about who will succeed who."

The Jamahiriya is still a police state, but progress has been made on human rights - the hangings and disappearances of old have stopped - and there is talk of releasing political prisoners. "There's a bit more wriggle room if you don't question the basics," says the diplomat. But there is no suggestion of fundamental political change to match the economic opening, as Gadafy made clear in his televised "conversation" with Sir David Frost last week.

Overall, the sense is of a transition that could go on for a long time yet, but with expectations of bigger changes when the Leader is now longer around. "The US is playing a waiting game," argues Ashour Shamis. "Now they are waiting for the post-Gadafy era and are happy with any footholds they can secure within the system, diplomatically, politically and academically, so they have solid ground to stand on when he goes."