2 August marks the fifth anniversary of the Iraqi invasion of Kuwait. The continuing threat from Iraq, and an increasingly militant National Assembly which is challenging the very heart of Al-Sabah family rule in the emirate, has led to fears by potential foreign investors and banks. While the gutted buildings and charred vehicles are gone from Kuwait's landscape, the economic debris has yet to be picked up.
Nearly all Kuwaitis are alarmed as the existing chronic financial deficit renders Kuwait's future uncertain. The deficit is estimated at US $5.6bn in the fiscal year 1994/95, which ends in July. GDP remains 5% below prewar levels and is expected to grow only 2-3% this year, according to Central Bank statistics. Most disconcerting for Kuwaitis is that neither the Al-Sabah rulers, nor the National Assembly, nor even the Finance Minister seem committed to bringing spending back in line with revenue. "They are depending on the country's foreign assets to bail them out," says one European economist. "But these assets are already greatly diminished since the Gulf War. They can't hold the country up forever."
Government officials claim Kuwait's hard foreign assets total $65bn, down from a pre-war high of around $100bn. One National Assembly deputy who is also on the finance committee contests these numbers. He asserts that more than half this figure is made up of "Third World assets," and that they are either vastly overstated or unrealisable. He estimates the real value of foreign assets at $20-25bn. "And even much of this is in big stakes which would take time to unload profitably".
As Kuwait grapples with, or, as some say, ignores its economic problems, and begins this year to make repayments on the $5.5bn syndicated loan taken out in 1991, the government is in need of cash which the country's 2 million b/d in oil production cannot provide at today's prices. There is indecision on how to raise this money. Despite claims from Kuwaiti officials that there are "more than sufficient funds" to make the first payment on the loan, due in July 1995, one source in Kuwait says the government is trying desperately to reschedule repayment of the loan, so far without success.
The finance ministry's investment arm, the Kuwait Investment Authority (KIA), announced in July 1993 that it would privatise its holdings in 64 companies on the Kuwait stock market over a five-year period, at an estimated value of $800m. Yet foot-dragging has cast doubts over whether this will be carried through. Privatisation "is a tough political question", says one Kuwaiti economist. "But competition and foreign participation in the economy must be pushed. If we hesitate, and continue to restrict foreign involvement, no one will invest here. The government has to take a stand."
Another shadow hanging over the privatisation programme is the festering problem resulting from the 1982 Manakh stock market crash, Kuwait's...