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RENEE MONTAGNE, HOST:

In Libya, a bit of good news. Its interim leaders say the post-revolution economy is doing better than expected, with oil and gas flowing and at least some salaries being paid. Still, there are enormous challenges ahead once a new government is in place because of what Moammar Gadhafi left behind - a staggering public payroll, huge subsidies on food and fuel and a populace trained for years to view the government as the primary source of economic well-being. NPR's Peter Kenyon reports from Tripoli.

PETER KENYON, BYLINE: Some Americans are old enough to remember pulling up to the pump at gas stations advertising fuel in cents per gallon, not dollars.

For many Libyans, that's the way it's always been and should continue to be in this sparsely populated oil-producing country. An unscientific sampling of opinion at this Tripoli gas station on a recent afternoon found every single Libyan who spoke believing that the government would keep the prices low, around 60 cents a gallon or bring them down even further.

KHALIFA MISHKEL: (Foreign language spoken)

KENYON: Fifty-year-old taxi driver Khalifa Mishkel says higher gas prices are unacceptable, because Libya is a rich country. Gasoline, electricity, water, these things, he says, should be not just cheap but free to all Libyans.

Westerners looking at the new Libya from afar tend to offer recipes for recovery that feature widespread privatization of state-owned companies, and a robust private sector that takes over the tasks of job and wealth generation.

A recent op-ed piece by Jay Hallen, a financial consultant with experience in Iraq and Egypt, argued that Gadhafi's moves to virtually eliminate property rights must be reversed, and that Libya's oil wealth should be used to create venture capital funds.

But such prescriptions offer no help when it comes to changing the deeply ingrained instincts of Libyans, to rely on the government for just about everything.

NASSER GADOUR: (Foreign language spoken)

KENYON: Another taxi driver, Nasser Gadour, says just before the Tunisia Revolution, Gadhafi tried to raise gas prices to a shocking $1 a gallon. But even a dictator of four decades had to back down in the face of public outrage.

In their 2007 book on the Libyan economy, authors Waniss Otman and Erling Karlberg call the Libyan worker under Gadhafi one of the most protected in the world, adding that Libyans have a subsidy mentality and a, quote, "job for life outlook which has ill-prepared Libyans for the more aggressive and cut-throat world of competition."

Libya's acting Finance and Oil Chief Ali Tarhouni says he hopes the new Libya will feature a smaller government and a larger and freer private sector. But he has no illusions that it will be an easy transition.

DR. ALI TARHOUNI: The challenge here is that this is a welfare state. And what makes it challenging is that actually right now, the level of expectations of the people are very high, and that the government will deliver even more rather than less. But also that the private sector is fundamentally very weak here. And it's also because of the corruption that existed over these last 40 years.

KENYON: One Libyan businessman is on a mission to change the subsidy regime and eventually to end it. Husni Bey is CEO of HB Group, a collection of import/export, trading and logistics companies. He says the government is spending a thousand dinars – a little over $800 – on the average Libyan household each month. He enjoys asking and answering the question this raises in his mind.

HUSNI BEY: So if you have a household costing you 1,000 Libyan dinars a month, why do we have poor? We have poor because the subsidy in goods in rations is smuggled, stolen, abused, corrupt. So you are just fueling inflation, disappearance of the cash currency, which we can see here in Libya, and a few people making lots of money.

KENYON: Bey believes that subsidy reform will not only free up the private sector but will reduce the percentage of Libyans - now estimated at 40 percent - living below the poverty line.

But as any number of governments from Indonesia to Iran to Egypt have found, weaning a population off a subsidy-heavy lifestyle is easier said than done. Analysts say a brand-new Libyan government is unlikely to put that at the top of its to-do list.

Peter Kenyon, NPR News, Tripoli.

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