NTC Chairman Mustafa Abdul Jalil speaking in Benghazi earlier this month

Clarification: This story clarifies and amends details of a CNN report filed from Tripoli Tuesday. It removes any suggestion that money was unaccounted for as a result of foreign exchange transactions by the Temporary Financing Mechanism, and adds the response of the TFM to allegations that its dealings have been insufficiently transparent.

Story highlights

Libya's new government was faced with urgent financial needs, says an official

The NTC used "parallel markets" to exchange incoming monies for local currency

"Parallel markets" meant dealing with wealthy currency dealers

Criticism has arisen over exchange rates and expenditures

TRIPOLI, Libya CNN  — 

When Libya’s National Transitional Council set up shop in the capital, Tripoli, it found the cupboard was bare.

“We only had $13.5 million in the Central Bank of Libya,” according to Ali Tarhouni, the oil and economy Minister and one of the first senior officials of the NTC to arrive in the capital.

Moammar Gadhafi was on the run, but an acute shortage of Libyan dinar – the national currency – threatened to stop the revolution in its tracks.

“I was willing to do anything to get the urgent needs to the Libyans,” Tarhouni said last week. “We used parallel markets in the exchange of the money.”

“Parallel markets” meant wealthy currency dealers in Benghazi, who apparently had many more dinar at their disposal than Gadhafi’s Central Bank in Tripoli or the rebels’ own Central Bank in Benghazi. With names like Golden Dinar and Sahara International, they became the financial lubricant of anti-Gadhafi forces.

The NTC’s financial arm, the Temporary Financing Mechanism, had by then already tapped into this informal network of foreign exchange dealers, but not without some controversy.

Early in August, according to one source familiar with the TFM’s dealings, it exchanged $10 million at a rate of 1.45 dinar to the dollar. The source said that was less than the prevailing market rate of 1.55 dinar, suggesting that the dealer involved did exceptionally well.

Another transaction later in August also appeared to be at less than the market rate.

“On what basis did they choose those dealers and those exchange rates?” the source asked.

One currency dealer in Benghazi, Ibrahim Salaby, said the TFM’s dealings smacked of favoritism..

The TFM says all its dealings have been transparent. It says it had to use the “parallel” market and was sanctioned to do so by the rebels’ “Central Bank,” which was established in Benghazi soon after Gadhafi’s forces were ejected from the city.

TFM officials said the central bank simply did not have the available funds to exchange large sums of cash, so it designated exchange dealers to be used.

E-mails obtained by CNN suggest that those dealers drove a hard bargain with the TFM. One wrote in August that he was withdrawing an offer to exchange at a rate of 1.45 dinar to the dollar because “no transfer was made, with situation changing in Libya. … Therefore we had to change the ex-rate to be 1.3LD/US.”

In the chaos of the uprising, there was plenty of cash floating – and flying – around Libya. Much of it came from the Gulf and went to groups and fighters beyond the NTC’s control.

On one occasion, according to the TFM’s director, Mazin Ramadan, a currency trader arrived at Benghazi airport short of 20,000 dinar. The money was due to leave on a flight to aid civilians in the western mountains who hadn’t received salaries and pensions. Time was short, and a TFM official who had previously spent his own cash on a project was told to take an equivalent sum from a stockpile of cash held on board the plane. A guard thought he was stealing and reported the incident.

“It was a bad judgment call on his part,” says Ramadan of the official, “and I paid for it through the gossip channels.”

“It was a big mistake not communicating every step of our work. We were too busy getting things done,” Ramadan says.

But he insists the TFM has had plenty of oversight. “We have a steering board which includes a representative from the governments of Qatar and France. We have an independent financial managing agent….They have to approve every transaction, every exchange and every project we do,” he told CNN in an e-mail.

As for the shortage of Libyan dinar, that has eased, in part thanks to the Royal Air Force. At the end of August it flew banknotes worth 280 million dinar to Benghazi, part of a stock of 1.86 billion dinar that had been frozen in the United Kingdom with the passage of UN Security Council Resolution 1970.