DEPUTY SECRETARY KIMMITT MEETS TOP KUWAITI FISCAL

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 001108 SIPDIS E.O. 12958: DECL: 11/04/2018 TAGS: EFIN EINV ECON KTFN ETTC KU SUBJECT: DEPUTY SECRETARY KIMMITT MEETS TOP KUWAITI FISCAL AND MONETARY OFFICIALS REF: KUWAIT 1089 Classified By: The DCM for reasons 1.4 (b) and (d) ¶1. (C) Summary: Deputy Treasury Secretary Robert Kimmitt discussed the global response to the financial crisis with the Kuwaiti Finance Minister, Central Bank Governor and the head of the KUWAIT Investment Authority on October 30. The Kuwaiti interlocutors agreed on the need for coordinated follow-up to the November 14-15 G-20 Summit, stressed the positive contributions of sovereign wealth funds (SWFs),and were receptive to Kimmitt's comments on the importance of strong anti-money laundering legislation and enforcement. End summary. ¶2. (C) Deputy Secretary Kimmitt visited KUWAIT on October 30, where he met with Mustafa Al-Shimali, the Minister of Finance, Shaykh Salem Al-Sabah, the Governor of the Central Bank of Kuwait, and Bader Al-Saad, the Managing Director of the KUWAIT Investment Authority (KIA). Kimmitt also met with Prime Minister Shaykh Nasser Al-Sabah and Foreign Minister Shaykh Dr. Mohammed Al-Sabah (septel). Kimmitt discussed the upcoming G-20 Summit in Washington, DC, stressing the need for carefully coordinated follow-up action by the G-20 and other nations, not least those of the Gulf Cooperation Council (GCC); the importance of open investment and open trade, including the role of SWFs; the upcoming change in administration in Washington, DC; and the importance of enhanced anti-money laundering legislation and enforcement on the part of the Kuwaiti authorities. -------------- CRISIS RESPONSE -------------- ¶3. (C) Minister of Finance Al-Shimali indicated his Government's willingness to play a proactive role in global efforts to craft a coordinated response to the financial crisis, particularly in the wake of the upcoming G-20 Summit. Shaykh Salem of the Central Bank said he was encouraged by the high levels of international coordination under way, which he said should help to restore financial markets' badly shaken confidence. ¶4. (C) Minister Al-Shimali agreed on the critical need for the IMF and the Government of Pakistan to agree on terms for an aid package, given the balance of payments crisis facing Pakistan and the geo-political ramifications of economic turmoil in that country. -------------- SWFs - LEVEL PLAYING FIELD? -------------- �00A; ¶5. (C) KIA Managing Director Al-Saad expressed concern about the efficacy of the Santiago Principles (Generally Accepted Principles and Practices for Sovereign Wealth Funds); in particular, he noted that the Principles' promulgation was not altogether conducive to open investment and trade. He argued that a lack of similar principles for hedge funds and private equity firms might disadvantage SWFs as they consider investments in recipient nations. He also noted that the highly leveraged positions of some hedge funds had a played a role in the current financial crisis. Al-Saad said that he is "not a fan of more regulation" for investors, but, at the same time, is concerned that SWFs are not being "treated equally" and that the playing field is not as level as it might be. Kimmitt agreed that some form of expansion of the Santiago Principles to cover other types of investors would be worth exploring. He noted that requiring increased transparency and identification of foreign limited partners of U.S. private equity funds, as has been suggested by some in the U.S., might result in an increase in CFIUS reviews. Kimmitt also noted that hedge fund transactions are generally subject to indirect supervision because banks' roles as counterparties in trades were subject to regulatory oversight. ¶6. (C) Al-Saad asked about the scale of credit card debt in the U.S., noting that September witnessed an acceleration in defaults. Kimmitt noted that, while these defaults are being monitored and are a cause for concern, the U.S. Treasury presently did not view credit card defaults as being as problematic as home foreclosures and overall economic slowdown. Al-Saad also asked about the terms of the Treasury's cash infusions into U.S. banks and for the Deputy Secretary's views on the unprecedented volatility in the currency markets. Kimmitt gave Al-Saad a model term sheet for the arrangement between the Treasury and the beneficiary KUWAIT 00001108 002 OF 002 banks. Additionally, in response to a query from Al-Saad, Kimmitt emphasized the unprecedented levels of planning -- including close coordination between the Treasury and the two presidential candidates' campaigns -- presently underway to ensure a smooth transition between administrations in Washington, DC. -------------- -------------- PUTTING TEETH INTO ANTI-MONEY LAUNDERING MEASURES -------------- -------------- ¶7. (C) Kimmitt stressed the importance of combatting money laundering in Kuwait, emphasizing the importance of countering financing of terrorism and Iranian nuclear proliferation. The Minister, the Central Bank Governor and the KIA chief were all receptive to Kimmitt's comments that both FDI into KUWAIT and Kuwaiti investment in recipient countries might be undermined by the relative lack of enforcement of anti-money laundering measures in Kuwait. Al-Saad and Shaykh Salem both signaled that they are aware of the detrimental optics of poor money laundering enforcement in Kuwait. Minister Al-Shimali stated that KUWAIT is "free of these (money laundering) activities," arguing that the Central Bank looks closely at banks' transactions every day. He noted the existence of anti-money laundering legislation and acknowledged that critical amendments were stalled in the parliament. -------------- KUWAITI AND GCC FINANCIAL POLICY -------------- ¶8. (C) Shaykh Salem discussed the Central Bank's moves to bolster confidence in the local economy in the wake of this week's bailout of Gulf Bank (reftel). He noted that Parliament had just approved legislation to guarantee all deposits in Kuwaiti banks as well as the local branches of foreign banks. He voiced concern that Kuwait's existing legal and regulatory frameworks made it difficult for the Central Bank to act decisively in times of fiscal crisis. Shaykh Salem also stated that KUWAIT lacks a vision for the country's direction in the coming decade. He also said that GCC monetary unification was several years away, noting that Kuwait's own parliament constituted a likely impediment. ¶9. (C) The KIA's Al-Saad also noted the current efforts in the parliament to establish an Islamic bank, which, he said, was not in Kuwait's economic interest. ¶10. (U) Deputy Secretary Kimmitt approved this cable. ********************************************* * For more reporting from Embassy Kuwait, visit: http://www.state.sgov.gov/p/nea/kuwait/?cable s Visit Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ ********************************************* * JONES