KUWAIT INVESTMENT AUTHORITY MD TO AMBASSADOR: KIA

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000977

SIPDIS

FOR NEA/ARP KELLY, EEB/IFD/OMA SNOW
TREASURY FOR BERRY AND ROSE

E.O. 12958: DECL: 09/09/2018
TAGS: EFIN ECON EINV KW

SUBJECT: KUWAIT INVESTMENT AUTHORITY MD TO AMBASSADOR: KIA
WILL NOT BENEFIT FROM GREATER "TRANSPARENCY"

Classified By: Ambassador Deborah K. Jones for reasons 1.4
(b) and (d).


1. (SBU) Summary: On September 9, KIA Chairman Al-Saad
told Ambassador that KIA would have no problem meeting most
of the objectives in the draft Generally Accepted
Principles and Practices for Sovereign Wealth Funds. He
reiterated his contention, however, that government
investors were being treated unfairly, and that KIA would
not benefit from more "transparency." The two briefly
discussed the conservator take over plan of Fannie Mae and
Freddie Mac, with Al-Saad expressing his appreciation for
timely information provided by Treasury. KIA has
substantial debt and equity holdings in both companies.
End Summary.

Sovereign Wealth Funds
--------------


2. (SBU) Ambassador, accompanied by Ecouns, met with Kuwait
Investment Authority (KIA) Managing Director Bader Al-Saad
and the Executive Director of his office, Ahmed Al-Bastaki,
on September 9. Ambassador, noting that the International
Working Group on Sovereign Wealth Funds (SWFs) had reached
agreement on a draft set of Generally Accepted Principles
and Practices, asked for Al-Saad's views. Al-Saad
reiterated his contention that SWFs, such as KIA were being
unfairly treated. He argued that KIA had a responsibility
to Kuwait and its future generations to achieve appropriate
investment returns, and had never acted to further a
geopolitical agenda. He asked, rhetorically, why SWFs
should be subjected to this enhanced scrutiny when hedge
funds or private equity were not. He asserted that, in
KIA's case, he wasn't worried about meeting most of the
draft guidelines since 60-70 percent of the required
information was already on KIA's web site.


3. (SBU) Al-Saad reiterated his contention that more
disclosure would not benefit KIA. The oil revenue inflows
were already publicly available and KIA reports on its
portfolio to the Kuwaiti cabinet and National Assembly. He
rejected the assertion that increased transparency would
minimize protectionism, noting that "the Chinese are
completely transparent," with regard to their SWF, but
still faced protectionism.

Economics and Investment
--------------


4. (SBU) Ambassador and Al-Saad briefly discussed the
September 7 announcements that the Federal Housing
Assistance Agency (FHAA) had taken over as conservator of
Fannie Mae and Freddie Mac. Al-Saad noted his appreciation
for Treasury U/S for International Affairs McCormick's
efforts to reach out to KIA to explain the action. Other
Kuwaitis, including the Central Bank Governor have
privately praised the USG's flexibility and creativity in
addressing the problems of the two government sponsored
enterprises. (Note: KIA has told us that it holds
"substantial" equity and fixed income portfolios for both
companies. They are reassured that the fixed-income
portion of the portfolio, at least, will continue to
generate revenue. End Note.)


5. (SBU) In response to a question from Ambassador, Al-Saad
noted the main question he heard from Kuwaitis was not
about the FHAA conservatorship, but about the sharp drop in
the Kuwait Stock Exchange (KSE) and "what the government
was prepared to do about it." He argued that the KSE, like
most emerging market stock exchanges, was largely liquidity
driven. With large companies such as Zain and National
Industries increasing their capital substantially, it
sucked some of the liquidity from the market. Al-Saad
remarked that there was only a low correlation between the
movements of the Kuwaiti Stock Exchange and western
markets.


6. (C) With regard to general macroeconomic issues in
Kuwait, specifically inflation, Al-Saad sharply criticized
government fiscal policy as contributing to inflation and
being politically driven. The challenge, he noted, was how
to create jobs when the government controlled 60-70% of
GDP. He also argued that, while a country could not cut
itself off from international markets, it could minimize
the risk of turbulence by diversifying its income away from
a single source.


KUWAIT 00000977 002 OF 002


Jones