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TRIPOLI (Reuters) - After a plane-load of Russian-printed banknotes landed in eastern Libya this week, residents rushed to collect long-delayed salaries. In Tripoli, where notes dispatched from Britain are yet to be distributed, people queued in vain to withdraw cash.
The separate deliveries have created more confusion in Libya, alongside warnings that efforts by a U.N.-backed government to unite the country and rescue its failing economy could be undermined.
Resolving an acute liquidity crisis is seen as key to the success of the Government of National Accord (GNA), which has been struggling for two months to establish itself in Tripoli and to make its presence felt on the ground.
Residents in the west say they have seen no improvement in their daily lives, while eastern officials have pushed to ease financial difficulties independently, trying unsuccessfully to export their own oil and ordering 4 billion Libyan dinars ($3 billion) of fresh currency supplies.
The GNA is meant to replace two rival governments set up in Tripoli and the east in 2014. The eastern government was recognized internationally, but its attempts to wrest control of the National Oil Corporation (NOC) and the Central Bank of Libya (CBL) have been blocked.
"We asked many printing houses to print for us but nobody accepted. That's why we went to the Russians," said Ali Jehani, a senior central bank official in the eastern city of Bayda. "We could not wait any longer because the economic situation was getting worse in the east."
Libya's economy has been deteriorating rapidly. It used to be one of Africa's wealthiest nations, but conflict and political anarchy after the uprising that toppled Muammar Gaddafi five years ago have wrecked the oil exports that provide nearly all its income.
Revenue from oil sales is down to about 15 percent of its 2013 level, while bloated public wage and import bills led to budget and current account deficits of around 75 percent in 2015, according to the World Bank. Foreign reserves plunged from $108 billion in 2013 to $57 billion by the end of last year.
The value of the Libyan dinar on the black market is about a third of its official rate.
Living standards have tumbled and prices soared, with the cost of bread up fivefold last year alone. Some 1.3 million of Libya's 6.3 million people are in need of humanitarian assistance, according to the United Nations.
Tripoli seems relatively normal, its roads congested and new shops and restaurants even opening in some neighborhoods.
But salary payments have been delayed for months and banks have strictly limited withdrawals, leading to queues that sometimes start forming overnight. Last month there was a stampede at one bank and several people were shot dead by guards.
Economists say there is plenty of money in circulation, but people keep it at home because they have no trust in the banks.
Frustration at the GNA, whose leaders are still operating out of a heavily secured naval base on Tripoli's seafront, has grown as the Muslim fasting month of Ramadan approaches.
"The prime minister lied to us – he told us everything would be fine and then he left us." said Walid Aguileh, a soldier standing in line outside a Tripoli bank. "What's he doing by the sea while we're here queuing?"
The central bank offices in Tripoli in the west and Bayda in the east both say they are acting neutrally to relieve the crisis, and that their new banknotes will be distributed across the country.
The Bayda office has already delivered some of the 200 million dinars that arrived on Tuesday to eight commercial banks in the east, as well as to southern regions, Jehani said. It is expecting to deliver to western Libya next week and is in "full cooperation" with the central bank's issuing department in Tripoli.
The central bank in the capital, which has ordered 1 billion dinars printed in Britain, said a consignment of 112 million dinars that landed on Wednesday would be delivered to "banks in all Libyan cities, without exception".
But mistrust runs deep. Jehani said the eastern central bank had been forced to act because over the past 18 months the east had received less than half of what it should have in payments from Tripoli.
The central bank in Tripoli has aligned itself with the GNA, which issued a statement last week saying the distribution of Russian-printed notes could lead to political division, a collapse of the currency, and hyper inflation - though a leaked internal letter later appeared to show the GNA was prepared to accept the move.
Western diplomats are also critical. The U.S. embassy said it shared GNA concerns the Russian-printed banknotes "would be counterfeit and could undermine confidence" in Libya's currency and the CBL's ability to manage monetary policy.
"I hope that this issue of money does not lead to the division of the country," said Benghazi resident Moataz al Oraibi, who said salaries were unpaid for 4 months. "But if the situation we're facing continues, the country will be split and we will pay the price."
Additional reporting by Ahmed Elumami and Ayman al-Warfalli; writing by Aidan Lewis; editing by Peter Graff