GOK PASSES $5 BILLION LENDING PACKAGE VIA AMIRI

UNCLAS KUWAIT 000312 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN KU SUBJECT: GOK PASSES $5 BILLION LENDING PACKAGE VIA AMIRI DECREE REF: A. KUWAIT 202 ¶B. KUWAIT 111 ¶C. KUWAIT 270 ¶D. KUWAIT 79 ¶E. KUWAIT 130 ¶1. (U) Via Amiri decree the GOK has passed a $5.2 billion economic package designed to spur lending by Kuwait's banks (refs A and B). With the National Assembly dissolved pending May elections (ref C),the Government passed its so-called stimulus package as an emergency measure. The law is largely structured to ensure banking sector stability and to encourage new lending. It also has provisions for supporting Kuwait's troubled investment companies, some of which have defaulted, or face the prospect of defaulting, on multi-billion dollar short-term obligations (ref D). The package does not include stimulus spending such as infrastructure projects nor does it provide for citizens' debt relief, a demand of many members of the recently dissolved National Assembly (ref D). ¶2. (U) Press reports indicate that the Government will use similar emergency decrees to promulgate a long awaited regulatory law for the Kuwait Stock Exchange and to pass the fiscal year 2009-2010 national budget (year ending March 31, 2010). On March 26, the Council of Ministers formally approved the budget, which essentially matches the draft numbers provided by the Ministry of Finance to the National Assembly in February (ref E). The FY 2009-10 budget is based upon an oil price of $35 per barrel, resulting in expected revenues of KD 8.1 billion ($27.9 billion); expenditure is set at KD 12.1 billion ($41.7 billion),resulting in an anticipated budget deficit of 36.2 percent. However, the current fiscal year included a one-time $19.1 billion recapitalization of the GOK's social security fund, meaning that the FY 2009-10 budget shortfall is only 10.7 percent on a non-recurring basis. COMMENT -------------- ¶3. (SBU) Under Kuwait's Constitution, the newly elected National Assembly will have the authority to review -- and nullify -- any legislation enacted via Amiri decree. Given tensions between the Government and successive Parliaments in the past two years, it is not inconceivable that the new National Assembly will seek to annul the bailout legislation and the budget. The GOK's $5 billion "stimulus" package is heavily contingent on banks choosing to run the risk of extending lines of credit to investment firms and other companies with weak balance sheets. Providing partial guarantees to banks to undertake risky lending may not prove adequate incentive for Kuwait's banking sector, which has weathered the global financial crisis far better than most banks in OECD nations. Additionally, the threat of annulment could undermine the confidence that the legislation is designed to foster, particularly if the Government proves reluctant to commit funds out of concern that the decree might be nullified by the new Parliament. End Comment. ********************************************* ********* For more reporting from Embassy Kuwait, visit: visit Kuwait's Classified Website at: http://www.intelink.sgov.gov/wiki/Portal:Kuwa it ********************************************* ********* JONES