Kuwait Tries to Tackle Big Debts, Slow Economy
WITH billions of dollars readily available, government spending used to keep the Kuwaiti economy going.
Today money is less abundant and the administration has not succeeded in boosting the country's stagnating economy.
"The government has little funds to invest in the local economy. It used to be the country's main consumer. But now it can't continue its extravagant public spending program," says Amer Al-Tameemi, a Kuwaiti economist.
Early in May, the government issued bonds to pay off $20 billion in bank debt stemming from the collapse of the unofficial stock market in 1982. The government hopes this will stimulate the economy.
"With the elimination of bad debts, banks will work on a clean balance sheet. They can then loan money, and businessmen can start their work," says Bader Abdul-Rahim, a foreign trade official in the Ministry of Commerce and Industry.
Kuwaiti and Western economists question the move. "This is not going to stimulate the economy. It's too late," says Jasem Al-Sadoun, general manager of Al-Shall Economic Consultants. "There is no private sector, so stimulation of the economy is in the government's control."
The administration's debts are growing as it tries to remedy the country's losses stemming from the Iraqi invasion of 1990.
The government has spent an estimated $60 billion on reconstructing the country. It has paid real estate and consumer loans, raised government salaries by 25 percent, and compensated for war damages. The government has also proposed buying hundreds of apartment buildings from Kuwaiti landlords. Reconstructing the oil industry will cost $8 billion to $10 billion. Defense spending is up sixfold to $9 billion. Foreign assets dwindle
For the first time in decades the government has a budget deficit - an $18 billion shortfall. Kuwait's foreign assets have fallen from $100 billion to $40 billion.
The administration has already borrowed billions of dollars from commercial banks and signed billions more in export credit guarantees. It may have to delve further into its foreign assets or borrow more as costs build.
Even the head of the state-owned Kuwait Investment Authority suggested that public spending stop. "I don't think the way the government is spending is wise under the circumstances," Abdulla Al-Qabandi told Reuters recently in an interview. "The government should make a courageous decision to tighten belts." Half of population abroad
Will the private sector help the economy get back on its feet?
The government is trying to boost this segment by paying off household debts. There are also plans to sell public assets, including the communications, transportation, and oil sectors.
Private entrepreneurs are still suffering from the Gulf crisis. The real estate market is down, with half the population still abroad.
Manufacturing was hurt by the population decrease. Many factories were destroyed and looted during the Iraqi occupation. Owners are reluctant to repair these facilities before being compensated for their losses.
Managerial posts were also left empty with the mass exodus of Palestinians, who filled many of these positions.
The country continues to suffer from capital flight. Kuwaitis undoubtedly have money, but most invest abroad, especially with the lingering fear that Iraq will invade again.
Kuwaitis are also reluctant to invest before parliamentary elections in October, economists say. The democratic opposition got a boost this week, winning an overwhelming majority in elections for the newly politicized Chamber of Commerce and Industry. The democratic opposition is questioning the administration's spending habits, saying some measures largely benefit the rich. Oil holds the key
Western and Kuwaiti economists agree that the real answer to Kuwait's economic problems will be the country's oil.
"In the long run, I'm optimistic, provided Kuwait can continue with their production of oil and provided world oil prices don't fall," says one Western economist. "Then, everybody feels the country will be able to get its account balance in order after three to four years."
Oil production is already back to 900,000 barrels per day. By year's end, it is expected to reach 1.5 million, the pre-invasion level. By June 1993, the country plans to produce 2 million b.p.d.
There is one catch, however: Kuwait is reportedly abusing its oil reserves by pumping too much too fast. With wellheads and other pressure controls destroyed, the oil wells are pulling too strongly and bringing up water from underground aquifers. The government has banned news regarding oil production quality.