Identifier
Created
Classification
Origin
05KUWAIT4672
2005-11-01 13:49:00
CONFIDENTIAL
Embassy Kuwait
Cable title:  

FINANCE MINISTER ON IRAQI DEBT, ECONOMIC REFORM,

Tags:  ECON EAID EFIN KTFN PGOV PREL IZ KU 
pdf how-to read a cable
VZCZCXRO5469
OO RUEHDE
DE RUEHKU #4672/01 3051349
ZNY CCCCC ZZH
O 011349Z NOV 05
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1604
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE IMMEDIATE
RUEHGB/AMEMBASSY BAGHDAD IMMEDIATE 0468
RUEHIL/AMEMBASSY ISLAMABAD IMMEDIATE 0861
RUEHLO/AMEMBASSY LONDON IMMEDIATE 1064
RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 004672 

SIPDIS

SIPDIS

STATE FOR NEA/ARPI SWALKER, S/I FOR JJEFFREY, EB FOR
JSALOOM, LONDON FOR LTSOU, ISLAMABAD FOR TWILDER,
DEPARTMENT PLEASE PASS TO USTR FOR PBURKEAD, TREASURY FOR
U/S LEVEY AND RWERNER

E.O. 12958: DECL: 10/06/2015
TAGS: ECON EAID EFIN KTFN PGOV PREL IZ KU
SUBJECT: FINANCE MINISTER ON IRAQI DEBT, ECONOMIC REFORM,
TAXATION, TERROR FINANCE AND EARTHQUAKE ASSISTANCE

REF: A. KUWAIT 4338

B. KUWAIT 4483

C. KUWAIT 4552

Classified By: Ambassador Richard LeBaron. Reasons 1.4 (b) and (d)

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 004672

SIPDIS

SIPDIS

STATE FOR NEA/ARPI SWALKER, S/I FOR JJEFFREY, EB FOR
JSALOOM, LONDON FOR LTSOU, ISLAMABAD FOR TWILDER,
DEPARTMENT PLEASE PASS TO USTR FOR PBURKEAD, TREASURY FOR
U/S LEVEY AND RWERNER

E.O. 12958: DECL: 10/06/2015
TAGS: ECON EAID EFIN KTFN PGOV PREL IZ KU
SUBJECT: FINANCE MINISTER ON IRAQI DEBT, ECONOMIC REFORM,
TAXATION, TERROR FINANCE AND EARTHQUAKE ASSISTANCE

REF: A. KUWAIT 4338

B. KUWAIT 4483

C. KUWAIT 4552

Classified By: Ambassador Richard LeBaron. Reasons 1.4 (b) and (d)


1. (C) Summary. In a November 1 meeting with the Ambassador,
Finance Minister Al-Humaidhi explained that there had been no
renewed contact with the Iraqi government on debt relief
since Ambassador Jeffrey's visit in October and that
reconstruction assistance was proceeding slowly. He
expressed cautious optimism about Kuwait's bullish stock
market and underscored the importance of an independent SEC
for Kuwait to enhance market oversight. Al-Humaidhi
identified pending reforms on public private partnerships,
taxation and privatization as top ministerial priorities for
this legislative session. He pointed to a pending GOK
decision to reduce the corporate tax rate from 55 to 15
percent as a precursor to more comprehensive reforms. He
disagreed with the practical applicability of a cash exit
declaration policy in Kuwait and said that the GOK's $100M
earthquake relief package was "only the start." End Summary


2. (C) On November 1, Ambassador met with Kuwaiti Finance
Minister Bader Al-Humaidhi to follow-up on GOK debt relief
and assistance to Iraq, solicit the Minister's views on the
booming stock market, request an update on pending economic
reforms, urge GOK action on tax reform, press for continued
GOK support and visibility for terror finance and
money-laundering initiatives, and urge sustained GOK
assistance to earthquake relief efforts in Pakistan.

Iraq Assistance and Debt Relief
--------------


3. (C) In follow-up to Ambassador's Jeffrey's discussions
with Al-Humaidhi on October 5 (see ref A),Ambassador asked

Al-Humaidhi whether there had been any renewed contact
between the GOK and the Iraqi Transitional Government (ITG)
on debt relief for Iraq within the context of the GOK's
commitment to a negotiated settlement. Ambassador added that
the USG was cognizant of Kuwaiti domestic sensitivities
impacting the approach to Iraq debt forgiveness, referring to
the recent clamor in the National Assembly for forgiveness of
Kuwaitis' private debt. Al-Humaidhi, echoing his comments
from the Jeffrey visit, said that there had been no new
discussions with the ITG since the World Bank/IMF meetings in
Washington. Al-Humaidhi repeated his complaint that "the
Iraqis always promise to contact but never do," suggesting
that "the Iraqis are busy with other things right now."


4. (C) Ambassador applauded the GOK's swift public rejection
of parliamentary calls to write off Kuwaiti citizens' private
debt as a quid pro quo for Iraqi debt relief or GOK disaster
assistance to the United States and Pakistan (see ref B).
Al-Humaidhi noted that writing off public Kuwaiti debt was
"widely welcomed by the people," but that he had made
political enemies in the parliament by rejecting the proposal
as economically unfeasible. He commented that such proposals
take for granted the country's current economic boom. With
oil prices in constant flux, Al-Humaidhi cautioned that there
was "no guarantee of future prosperity" and that it was more
prudent to save for future generations.


5. (C) On reconstruction assistance to Iraq, the Ambassador
pointed to the issuance of tenders for school construction by
the Kuwait Fund as a sign of progress, but noted that similar
progress on health sector projects was lacking. Al-Humaidhi
blamed the delays on the lack of Iraqi responsiveness.
(Note: KFAED recently issued tenders on a $30M grant to build
schools in Iraq as part of an overall $60M grant for Iraq's
health and education sector. KFAED officials justify
disbursal delays on security challenges, lack of ITG
responsiveness, and GOK's interest in finalizing disbursal
agreements with a permanent Iraqi government.)


6. (C) Ambassador informed Al-Humaidhi of USG plans to
replicate the Provincial Reconstruction Team (PRT) concept
from Afghanistan in Iraq. Ambassador suggested that the PRTs
could potentially facilitate the disbursal of GOK assistance
to the provinces, thereby overcoming some logistical
challenges confronting the GOK. Al-Humaidhi welcomed the
idea and urged follow-up on the PRT concept with KFAED

KUWAIT 00004672 002 OF 003


officials. (Note: Embassy would welcome additional details
on the PRT concept to be shared with KFAED.)

Economic Prosperity and Reforms
--------------


7. (C) Ambassador requested Al-Humaidhi's assessment of the
booming Kuwaiti stock market and the overall health of the
economy, including prospects for economic reform and expected
legislation during this parliamentary session. Al-Humaidhi
expressed cautious optimism about the market's excess
liquidity and continued surge, prompted in part by increased
GCC investment in Kuwait. He added that while he was
"personally not 100 percent at ease" with the market's
current pace, improved GOK market regulatory controls and
oversight made the possibility of a major crash, similar to
Kuwait's 1982 crash, less likely. Al-Humaidhi also called
for greater outreach by the GOK to ensure public awareness of
inevitable market fluctuations. He concurred with the
Ambassador's call for a Kuwaiti "Securities and Exchange
Commission," stressing the importance of having an
independent body to further strengthen regulatory oversight
and to increase the enforcement of rules and regulations (see
ref C regarding plans for a Capital Markets Authority).
(Note: The earlier, informal Kuwaiti stock market suffered a
major crash in 1982, prompting the formation of the Kuwaiti
Stock Exchange and enactment of more stringent regulations.)


8. (C) Al-Humaidhi identified three economic legislation
priorities for the Ministry. He said his top priority was
the structural overhaul of the current Build Operate Transfer
(BOT) and Private Public Partnership (PPP) initiatives. He
noted that the BOT/PPP reform measures would be presented to
the National Assembly shortly and that he would "push hard"
to ensure its success. This legislation would be the legal
framework for subsequent specific BOT projects. His second
and third priorities include reform of privatization and
taxation laws, respectively. (Note: Al-Humaidhi explained
that the GOK's first overall legislative priority would
remain the Northern oilfields project.)

Corporate Taxation
--------------


9. (C) Ambassador reiterated USG concerns with Kuwait's
"unfair, inconsistent, and non-transparent" tax system and
the negative impact the country's tax laws were having on
U.S. companies and foreign investment more broadly. He
called for GOK cooperation to help resolve the retroactive
taxation that is affecting U.S. companies with business
interests in Kuwait. Replying that the GOK "will try" to
address concerns, Al-Humaidhi pointed out that the GOK was
pursuing two measures to address immediate and long-term
concerns. He explained that the GOK would plan to reduce the
current foreign corporate tax rate from 55 to 15 percent in
order to provide immediate tax relief to foreign companies.
Al-Humaidhi explained that the GOK's draft "comprehensive tax
reform package," expected to be submitted to NA next year,
would address long-term concerns by thoroughly overhauling
the country's outdated tax regime. (Note: It remained
unclear to us whether this approach would alleviate current
problems faced by some U.S. companies.)

Terror Finance
--------------


10. (C) On terror finance issues, Ambassador informed
Al-Humaidhi about the planned November 30 visit by Treasury
Undersecretary Levey to discuss CTF/AML issues and the
ongoing efforts of U.S. Customs advisors employed by Kuwait
Customs to strengthen the GOK's AML efforts. Ambassador
underscored the importance of continued GOK support for the
advisors' efforts and encouraged Al-Humaidhi to participate
in the Customs' December conference to raise visibility on
the issue. Al-Humaidhi indicated having met the Customs
advisors and welcomed the opportunity to participate in the
December conference.


11. (C) Ambassador pointed to the lack of progress on
implementing a cash exit declaration policy in Kuwait to
better track the outflow of large sums of money from the
country. (Note: Kuwait currently only has a cash entry
declaration policy set at 3000KD or $10,000). Al-Humaidhi

KUWAIT 00004672 003 OF 003


disagreed with the practical applicability of such a policy,
suggesting that Kuwait's open market economy made it
difficult, if not impossible, to impose such measures here
and elsewhere, including the United States. He added that
the issue of cash transfers by NGOs and other entities was
also raised by Ambassador Jeffrey during his visit and that
the GOK was still waiting to receive from the USG information
on suspected Kuwaiti NGOs. Ambassador offered to follow-up
and noted that some of this type information exchange may
occur through intelligence channels.

Earthquake Assistance
--------------


12. (SBU) Ambassador praised the GOK's $100M assistance offer
for earthquake relief efforts in Pakistan and urged increased
GOK assistance to meet the urgent needs that are complicated
by the logistical and environmental challenges affecting the
devastated areas. Without offering specifics, Al-Humaidhi
said that the initial $100M package was "only the start" of
the GOK's relief efforts.


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