Kuwait delays debt rescue plan

The financial and economic affairs committee postpone a vote on the financial bailout package.

Customers at a showroom in Shuwaikh, Kuwait, where the debt issue has become prominent.

KUWAIT CITY // Kuwait's financial and economic affairs committee postponed a vote on the final version of the financial bailout package in parliament this week after disagreement over who should benefit from the plan. The proposed 1.5 billion Kuwaiti dinar (Dh18.74bn) package would help banks aid the country's troubled investment companies. The draft law also guarantees half of as much as 4bn dinars of banks' new loans to local firms. It is the only economic stimulus package to be officially announced in the GCC. But the package still has to get past parliament, and politicians are pushing for more aid to indebted Kuwaitis. On Sunday, five politicians called for a 10,000 Kuwaiti dinar interest-free loan for every citizen older than 21. Other MPs want the government to buy and forgive the public's debt. "We live in a rich country, it has a lot of treasures and we are entitled for generations to come," said Fatten al Naqeeb, a principal managing partner at the law firm Al Naqeeb and partners. "Myself, all my friends, we have personal loans, and we suffer from that. "I drive a Porsche and I've just finished paying it off. I may renew my personal loan." Ms al Naqeeb said most of her friends borrow as much as they can from the banks, which is usually one-and-a-half times their annual salary. This puts many of their loans in the region of 70,000 Kuwaiti dinars, she said. MPs say that by targeting companies, the money will end up benefiting a few wealthy businessmen and most citizens will miss out. The scale of the bailout has also been questioned. With the stock market losing about 50 per cent of its value in the past year and 99 Kuwaiti investment firms in 5bn Kuwaitis dinars of debt each, some economists have questioned whether the plan goes far enough.

"Our companies are not helping Kuwaitis or the government: they're not paying tax," said Jasem al Rasheedi, a Kuwaiti who wants to buy a second-hand car on a payment scheme. "The government sells petrol and what do they give us? It's better to help the people ? 270,000 people here have loans from the bank; it must be 85 to 90 per cent of the adult population." The government has bailed out its citizens several times before, and most Kuwaitis expect to get some form of relief again. But some economists are critical and say debt forgiveness encourages reckless spending and cranks up inflation. "When you buy the loans from Kuwaitis it will encourage them to get into more and more debt in the future," said Hussein al Talafha, dean of the college of business administration at the Gulf University for Science and Technology. "When you buy personal debts, you are giving aid or grants to those in debt but not giving support to those who are not in debt. It's about fairness." Mr al Talafha said he has never heard of anywhere else in the world where the government buys the public's debt. "In 2007, the government implemented a debt forgiveness scheme for Kuwaiti citizens that amounted to just over US$1 billion [Dh3.67bn]," said Jeremy Cripps, the head of the business and economics division at the American University of Kuwait, in response to emailed questions. "The current debt forgiveness proposal, like many global political ideas, seems to lack substance and detail and does not begin to answer questions about national interest and individual fairness." Flagging financial markets have put a serious dent in the government's assets. When combined with a low oil price, it is difficult to know just how much the government can afford, he said. In addition to the difficult economic situation, the depth of Kuwait's personal debt problem is unclear. "As far as I know, no figure detailing the current total of Kuwaiti citizens' debt has been made available," Mr Cripps said. "Until now, questions about where the money will come from and how it will be fairly distributed still have to be answered. Clearly, at this stage, the proposed package lacks the detail necessary for evaluation." [e-mail]