RABAT, Morocco (Reuters) -- Warmer political relations created by Libya's freeing of six foreign medics will boost efforts by the OPEC member country to widen investment ties and modernize its mostly primitive economic management, experts say.
Tony Blair shaking hands with Libyan leader Moammar Gadhafi in May, 2007.
Still trying to shake off the effects of years of sanctions, the north African energy exporter wants friendlier foreign ties to bolster its quest for outside investment and expertise to help diversify an import-dependent economy built on oil and gas.
Tuesday's releases should provide a welcoming political climate for that effort by ending what Libya's critics have called a human rights scandal, diplomats and experts say.
The Bulgarian nurses, jailed in 1999 after hundreds of Libyan children tested positive for HIV, denied charges they infected the children and said they were tortured to confess.
Resolution of the case is seen as a major step in Libya's return to the international fold after it earlier abandoned prohibited weapons programs and agreed to pay damages for a 1988 airliner bombing over Scotland that killed 270 people.
"Libya has remained for 20 years under embargo and is sitting on a big mattress of money and there are big contracts to be activated," said Antoine Sfeir, Paris-based expert on the Middle East and editor of Les Cahiers de L'orient.
"We must expect European countries, be they Italian, German, French or even American, to square up for new contracts in Libya and human rights will not weigh very much in the balance."
"Mr. Gadhafi has been for a while now a man who's well worth knowing and for perfectly mercantile reasons."
The European Union, whose member states are already among Libya's main trade partners, said the Bulgarian medics' release after eight years' captivity opened the way for what it called a "new and enhanced relationship between the EU and Libya".
"There was a cooperation agreement signed between Libya and the EU to develop and expand cooperation between them, which includes full cooperation and partnership between Libya and the European Union," Libyan Foreign Minister Mohammed Abdel-Rahman Shalgam told reporters in Tripoli.
A Libyan close to the negotiations for their medics' release said the improved ties would include free trade. Bulgaria is a new EU member.
The EU is expected to try to forge a partnership agreement with Libya similar to so-called association agreements it has with other North African countries. These are accords under which economic, trade, and political ties improve as long as the partner countries execute reforms agreed in advance.
The nurses' release is also expected to help smooth Libya's sometimes uneasy relations with the United States, whose companies are eyeing billions of dollars in deals to rebuild Libya's crumbling infrastructure.
"This was a big obstacle to improved relations as it was one of the major things preventing the Americans from opening full diplomatic relations with Libya," Maghreb expert George Joffe said.
"This gets rid of a very messy and nasty international problem for Gaddafi and that's important if you are trying to persuade people you are the kind of person you can engage with."
David Goldwyn, director of the US-Libya Business Association, said last year that U.S. firms were interested in supplying a large swathe of infrastructure -- information technology, telecoms, water, power and roads.
Libya is seeking as much as $30 billion in foreign investment over the next 10 years to almost double oil production capacity to 3 million barrels per day (bpd).
But the professionalism of Libya's oil and gas sector stands in stark contrast to a culture of red tape that blights other parts of the economy, diplomats say.
So the country is also seeking international participation in plans to modernize, simplify and liberalize a command economy long stifled by heavy-handed bureaucracy.
There is solid precedent for the link between better economic ties and improving political relations.
In 2004 President George W. Bush formally ended a U.S. trade embargo on Libya to reward it for its decision in 2003 to give up a weapons of mass destruction program.
Relations received another boost in 2003 when Libya reached a political accord with the United States and Britain to accept civil responsibility for the bombing of a U.S. airliner over Lockerbie, Scotland. E-mail to a friend
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