By Sherine El Madany
BENGHAZI, Libya (Reuters) - Shoppers struggle under bags of food and boxes of water bottles in Benghazi's main market. Sellers of mobile SIM cards connecting worried families are thriving. Cars vie for parking in the busy streets nearby.
But venture more deeply into Souq al-Arab, the wholesale market in the rebel-held east Libyan city, and the pace slows. Owners of clothes shops sit chatting, smoking cigarettes or sipping tea. Customers there are a rarity.
"The war is not encouraging anyone to come and shop for clothes," said Hossam Farag, a worker in a garment store. "Before the war, business was thriving. Now, our sales halved."
He has cut his prices 40 percent, to little effect.
The economy in Benghazi and the rest of rebel-held east Libya is in tatters after more than three months of civil war that has split the country in two and left veteran ruler Muammar Gaddafi still largely in charge of the west.
Insurgents hoped to advance swiftly on Tripoli but were halted by Gaddafi's better-equipped troops. Oil production in the east, the main source of revenues, is at a standstill. The rebel authorities are struggling to find cash to pay salaries.
There is little sign of any imminent improvement.
"We have no reserves, because Gaddafi emptied everything," Abdullah Shamia, who was appointed economy chief by the rebel National Transitional Council's executive committee, told Reuters.
BACK TO BASICS
That bodes ill for the Libyans in the east who, like others across the country, depend on salaries from the state, by far the biggest employer. Rebels are battling to keep the institutions of state propped up and funded.
Shamia said he was negotiating with banks from Qatar, the gas-producing Gulf Arab state that has become one of east Libya's biggest political and economic supporters, to facilitate international money transfers. That could help get cash flowing.
Western states have offered to help. European Union foreign policy chief Catherine Ashton visited Benghazi on Sunday and pledged support for the rebel leadership.
Washington, which took a leading role in securing a U.N.-backed no-fly zone over Libya, has pledged more aid and offers of loans to keep the rebels afloat while pushing for a deeper embargo on Gaddafi's government in Tripoli.
U.S. Assistant Secretary for the Near East Jeffrey Feltman, who met rebel leaders in Benghazi this week, said the United States had given $53.5 million to address the humanitarian crisis caused by the war and another $25 million in "non-lethal military supply."
For now, buyers in Benghazi are stocking up on food and basics and not much else.
But, although the economy is teetering and ordinary east Libyans have had to tighten their belts, many say the tough times are worth it to have thrown off Gaddafi's iron grip.
Fathia el-Bousy, a 50-year-old housewife, said food prices had surged since the revolt, but added: "It is a normal increase considering the war conditions, and we are willing to bear it as long as we are free."
Fears of a looming food shortage in eastern Libya have grown. The World Food Programme warned last month that food stocks were not being replenished at normal rates.
"The people here were stockpiling, especially at the beginning of the revolution. But now, after some foreign aid has come through, the rush is slowly getting back to normal," said Mohamed Ayad, a food store owner.
Shopkeepers also say the pace of price rises has eased.
"At the beginning of the war, prices surged because it was all a matter of supply and demand. But now, they started to fall again because people understand these are tough circumstances," said Al-Lafy Abdel Salam, who works in one food store.
Also in high demand are SIM cards for a mobile network that has been rigged so calls no longer go through exchanges in the Gaddafi-controlled areas.
The new arrangement means calls for now are free. But that is not the main draw. In uncertain times, keeping in touch with family in the fractured country is at a premium.
"SIM cards are selling like crazy, and their prices are on the rise. People do not care how much they have to pay for a card as long as they can reach their family and loved ones," said Hassan el-Oraiby, who sells SIMs.
Fellow vendor Ahmed el-Kowaify said the value had soared so much that some owners were selling them to earn extra cash for food and other basics. "The people here have a saying that SIM cards are more precious than gold," he said.
Vendors say a SIM card now costs between 150 and 200 Libyan dinars ($120-160), up from 50 dinars before the uprising.
Wessam Ali's business is also thriving. He runs one of a handful of Internet cafes in Benghazi, a city of 750,000.
"We have more traffic than before. My entire 11 computers are always occupied for the entire day," he said.
Fathi el-Mounaifi, who owns a shop selling mobile phones, said he was making a fraction of his income before the revolt but was not complaining. He said the economy under Gaddafi was getting worse by the day even without any fighting.
"We are the ones who wanted this revolution to happen even if it ate away our income," he said. "For 42 years, things have gone from bad to worse, and life was unstable for us. I will bear any future hardships, but Muammar gets out of here."
Some see more immediate benefits.
"Even though business is tough, I now pay less rent and taxes than I used to under Gaddafi, which is helping," said Saleh el-Tarhouni, a garment shop owner. "So, at the end of the day, things even out."
(Editing by Edmund Blair and Mark Trevelyan)