Analysis - Libya infighting leaves Gaddafi in driving seat

Libyan leader Muammar al-Gaddafi attends the opening session of the second Afro-Arab Summit in Sirte October 10, 2010.

ALGIERS (Reuters) - A new round in a power struggle between reformers and defenders of the status quo in Libya showed that Muammar Gaddafi alone will decide which path the country will take, and he is not yet ready to give his verdict.

The latest row --- which pitted a pro-reform son of the Libyan leader against powerful conservatives in the government -- ended with no outright winner, just stalemate and prolonged uncertainty about the oil exporter's future direction.

It began soon after a media group linked to Gaddafi's son Saif al-Islam launched a fierce attack on the government. In apparent retaliation, 20 of the group's journalists were detained and one of its newspapers was suspended.

The spat ended with an intervention by Muammar Gaddafi, Libya's leader and "Guide of the Revolution" for over 40 years, who ordered that the journalists be freed.

"Gaddafi is trying to make himself the referee," said Ashur Shamis, a Libyan writer and editor of akhbar-libyaonline.com, an online newspaper. "He is also, I think, enjoying the fight."

In the past six years, Libya has gone from international outcast with a stagnating economy to a bustling country where new office buildings and hotels spring up every month and foreign businesspeoplePass flock in search of lucrative deals.

Firms including BP (BP.L) and ENI (ENI.MI) have invested in oil exploration, engineering companies bid for huge infra-structure projects and banks such as HSBC (HSBA.L) and Standard Chartered (STAN.L) want to open operations.

But many of the changes are superficial. On paper, Libya still observes the principles set out in Muammar Gaddafi's "Green Book," where top-down government is banned and the country is run on Socialist lines by committees of citizens.

In practice, decision-making in Libya, home to Africa's largest proven oil reserves, is done through a shifting web of informal alliances and personal relationships which, critics say, allow mismanagement and corruption to flourish.

One example: in the centre of Tripoli in the shadow of the 260-euro a night Corinthia hotel, rubbish lies strewn in the streets and houses are in a state of collapse.

"Corruption has affected normal peoples' well-being so they are complaining more now," said a Libyan analyst who did not want to be identified. "It's shameful," he said. "Two decades ago the state was functioning better."

RESISTANCE TO CHANGE

Proponents of change led by Saif al-Islam want a constitution to give order to the system of rule, are trying to install Western-educated technocrats in official posts, and are campaigning against corruption.

His opponents have a range of motivations. Some do not want corruption uncovered. Some resent interference by outsiders. Others believe the principles of the revolution will be abandoned, or think the reforms will cause instability.

This month's row was the latest in a series of altercations involving Saif al-Islam. By the time it was over he had, effectively, fought his opponents to a draw.

The Oea newspaper, flagship of his Al Ghad media group, re-appeared in print but under a new name and with an editor who denounced his predecessor's confrontations with the authorities.

The chief executive of Al Ghad group, a former opposition figure whose appointment last year irked conservatives, resigned. No replacement has been named.

On the other hand, Muammar Gaddafi's instruction to release the detained journalists was a rebuke to whoever ordered their arrest. Meanwhile, Oea's combative Internet version is still functioning and signalled it would carry on as before.

"He (Saif al-Islam) is not strengthened but his project goes on," Shamis, the Libyan editor, told Reuters.

What is clear though from the whole episode is that no one in Libya has a power base to rival Muammar Gaddafi. Some people who know him say that Saif al-Islam, who holds no government job, lacks his father's charisma and political savvy.

"Neither the establishment nor the so-called reformists have produced their own camps," said the Libyan analyst.

"Camps need ideology, a programme, vision, and ideas to believe in ... Those that exist are Gaddafi's own and he is still here to see them through."

Gaddafi, who was born in 1942 and shows no outward signs of frailty, is in no rush to designate a successor. In the meantime, he seems content to let the rival groups fight it out while he deliberates on what direction Libya should take.

"His (Muammar Gaddafi's) head says: 'We need to modernise. Yes, we need to be Westernised and Saif is the way forward'," said Charles Gurdon, a London-based Libya expert at consultancy Menas Associates.

"His heart says: 'I'm still a revolutionary, I've been here for 40 years, if Saif is going to dump everything I've done for the last 40 years, I have no legacy'."

(Editing by Philippa Fletcher)