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Bizarre case of Libyan arms debt

Billions owed by Tripoli to Czech Republic are missing

By Markéta Hulpachová
Staff Writer, The Prague Post
January 16th, 2008 issue

A forged document, a communist-era agreement and a mysterious Egyptian are behind an international dilemma that could cause the government to lose billions of crowns as the Finance Ministry struggles to negotiate the repayment of a debt owed by Libya.
The troubles began last month, when a team of Finance Ministry representatives traveled to Tripoli to collect on a decades-old trade debt, which the Libyan government owed to Czechoslovakia in exchange for arms sold to Libyan leader Muammar al-Gaddafi’s authoritarian regime.
Although the Finance Ministry currently refuses to disclose the exact sum, the Czech News Agency (ČTK) estimates the debt to be worth approximately 4.68 billion Kč ($264.9 million).
During their trip to Libya, the delegates expected to receive assurances regarding the debt’s repayment. Instead, they were surprised to learn the debt had pulled a vanishing act. According to a suspicious letter presented to the delegation by the Libyan government, the multi-billion-crown claim had been sold to an Egyptian investor who had already partially paid it off.
To the Czech officials, the error-riddled document, which was not printed on government letterhead, seemed fraudulent at first glance.
“The letter in question is missing all the basic requirements — it contains spelling mistakes and typing errors,” says Deputy Finance Minister Tomáš Zídek, who participated in the delegation. “It’s evidently an attempt to damage the interests of the Czech Republic and Slovakia and mislead the Libyan government.”
The suspected foul play has launched a series of inquiries. When the ministry delegation returned home empty-handed, the Cabinet held a closed meeting to resolve the matter.
On Jan. 4, the government announced it was filing criminal proceedings against the “unknown perpetrator” responsible for the forged letter and the missing debt.
“We also plan to invite representatives from the Libyan government for further talks regarding this matter,” says Zídek, adding that the fraudulent letter will be the main focus of the police investigation.
“The document was created 11 years ago, so it is impossible to speculate who would have had an interest in damaging the Czech Republic,” he says. “We are hoping that both the local and Libyan criminal authorities will be able to shed more light on this situation.”
Dated Dec. 16, 1997, the document bears the signature of Libor Svoboda, who was then the Czech deputy finance minister.
Svoboda, now the chief financial officer at the University of Economics in Prague, says he never came in contact with such a document.
“I did not sign anything — not a nullification of the Libyan debt, a transfer to another debtor or anything else,” he told the daily Mladá fronta Dnes (MfD) Dec. 19.
Although he declines to comment on the situation, Ivan Pilip, who was then finance minister, also denies authorizing the document. “It doesn’t even fall under a minister’s competence,” he says.
Svoboda does, however, recall an Egyptian middleman who had a mandate for negotiating the debt’s repayment and worked at the Finance Ministry during the years in question.
“According to documents at our disposal, an Egyptian company was hired to administrate the debt during those years,” Zídek says. “That mandate was later revoked by the Finance Ministry.”
Credit history
Aside from the situation arising from the mysterious letter, the Libyan debt is surrounded by myriad diplomatic issues.
According to Zídek, the Czech government initiated compensation talks with Libya in 2006. That year, the United Nations lifted a 1992 trade embargo it had placed on Libya when the country refused to cooperate in a terrorism case and dismantle its weapons program.
“The Libyan side’s willingness to negotiate the debt was closely tied to an international embargo on economic cooperation, in which the Czech Republic participated,” Zídek says. “Until this embargo was lifted, it was obviously not possible to lead any kind of successful negotiations regarding the claim.”
With these sanctions out of the way, the Czech Republic launched repayment negotiations in the fall of 2006, joining Slovakia, which has a claim to a portion of the Czechoslovak debt.
“During the course of the past year, the situation changed radically,” Zídek says. “The Slovak government led its first successful round of talks with Libya in 2006. The Czech government joined the effort shortly after that.”
Because the original debt was owed to the Czechoslovak Federation, the debt became a point of conflict during the country’s 1993 split, when Slovakia refused to divide the claim at a 2:1 ratio.
Due to this disagreement, Prague now has to act in accord with Bratislava during talks with Libya.
According to ČTK, the Czech Republic’s original claim of $180 million has risen $80 million since 2003 due to interest.
The Libyan side, however, refuses to recognize the appreciated sum. “It is likely the Czech Republic won’t receive the full amount of the claim,” Zídek says.
Despite these complications, the government will probably see at least some of the money owed to it by Libya, as both countries have financial records that confirm the debt’s existence, Zídek says.
“The Libyan finance minister has personally assured me that he is interested in resolving this conflict and establishing economic cooperation, so I am not afraid of Libya’s refusal to pay the debt entirely,” he adds. “I am confident it will be settled.”

Markéta Hulpachová can be reached at mhulpachova@praguepost.com


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