Canada mulls ways to fund Libyan rebels with frozen Gadhafi assets

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Canada is looking at ways to unlock money for Libya's rebels even though it's legally barred from thawing the Gadhafi regime's frozen billions.

Meeting in Istanbul on Friday, a group of 35 countries in the so-called Libya Contact Group sought to bolster the legitimacy of the rebels' National Transitional Council and urged countries to find ways to fund it.

U.S. Secretary of State Hillary Clinton announced U.S. recognition of the NTC at the meeting. "We think they have made great strides and are on the right path," Ms. Clinton said.

The group declared the NTC the "legitimate governing authority" until an interim authority is in place and some countries touted it as way to deliver frozen assets to the rebels.

But Canada is bound by domestic laws that prevent it from transferring the assets to anyone until the UN Security Council lifts the freeze. Foreign Affairs Minister John Baird said the government is now looking into whether it can lend money to the rebels' council using Gadhafi regime assets as collateral.

Mr. Baird said there is a need to prepare for an interim government in a post-Gadhafi Libya.

Canada is considering setting up a diplomatic office in Benghazi, the eastern Libya city where rebels are headquartered, but is still judging the security risks, Mr. Baird said. The European Union and a handful of nations have diplomatic missions there.

Mr. Baird acknowledges the NTC needs money to operate services in rebel-held areas of Libya's east. He added that the NTC faces "tremendous need."

"The council is providing all the public services, everything from the police officers to running the hospitals … There's significant demands, and it's obviously imperative that we work to keep the support of the people of Libya to this mission."

The Libya contact group suggested countries consider lending money to the NTC, equivalent to 20 per cent of the frozen assets, using them as collateral as other countries, such as Turkey and Qatar, have done.

But that option might not clear the legal barriers, either. The Libyan assets are frozen, not seized, so the federal government doesn't have legal title to them, and no one can use them as collateral for a normal commercial loan, experts in frozen assets say.

The NTC is not the government of Libya yet, and it might never be, so it's not clear whether it will ever have legal title to the assets. And even if its leadership one day becomes the government with title over the assets, it's not clear whether the Canadian government has any legal power to guarantee the frozen assets would be used to repay any loan issued now.