KUWAIT'S MERCHANTS FRET ABOUT THE FUTURE, FAIL TO

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 000614 SIPDIS NEA/ARP, N E.O. 12958: DECL: 06/22/2019 TAGS: PREL PHUM PGOV KU SUBJECT: KUWAIT'S MERCHANTS FRET ABOUT THE FUTURE, FAIL TO SHAPE THE PRESENT Classified By: Political Counselor Pete O'Donohue for reasons 1.4 b and d REF: (A) 83 KUWAIT A-7 (B) 89 KUWAIT 3922 (C) 92 KUWAIT 4025 (D) 03 KUWAIT 138 (E) 05 KUWAIT 2197 (F) 09 KUWAIT 244 Summary -------------- 1.(C) In contrast to the rising influence of Kuwaiti tribal groups, Kuwaiti merchants' sense of shared identity and once predominant overt political and economic power has waned. Merchants are no longer the largest group in Kuwait, their dominance of the economy has been diluted by the Al Sabah and their role as the primary check on the authority of the government has been overtaken by members of Kuwait's boisterous and growing tribes. Some merchants have responded to this change by strengthening their economic and political ties to the ruling family, but others have attempted to maintain their historical identity as the "real" Kuwaitis by insulating themselves from their newly minted compatriots and continuing their opposition to the Al Sabah. Merchants have long used criticism of the government to extract financial concessions and gain access to largesse, but from the perspective of the business community, the risk that the ongoing rise of the tribes poses is to the economic structure that primarily benefits their interests. The future of Kuwaiti politics may be decided by the ability of the ruling and merchant families to find common cause to defend their shared interests. Despite their unease at the direction in which the country is headed, however, crafting such a bargain will be extremely difficult because these historical opponents still see compromise as less desirable than continuating the current stalemate. End Summary Historical Development of the Merchant Class -------------- ¶2. (C) The origins of Kuwait's social structure date to the founding of the state in the late eighteenth century. Tradition holds that the founding families of the al-Utub tribe chose one of their own to head the government and "mind the store" (e.g. provide for the city's defense and preserve peace among the families) while the others focused on trading and pearling. Depending on who is telling the story, the Al Sabah were chosen either because of their skill as mediators, or because they were the weakest family, and were therefore given the least profitable role. Subsequently, the Al Sabah and the original Sunni Arabian aristocrats were joined by the Jenaat -- a collection of Sunni families from what is today Iraq -- and Shi'a from across the Gulf. (Comment: More detail on the specific families can be found in Refs A-E. End Comment.) 3.(C) The political system in Kuwait evolved to balance the interests of these groups with the Sunnis acting as the main check on the authority of the Al Sabah. The Jenaat occasionally and the Shi'a most often allied themselves with the ruling family against the Sunnis. The Sunni merchants were pragmatic opponents and concentrated their efforts on pushing the Al Sabah to adopt policies that benefited their enterprises. The primary motivation of each family -- Sunni, Shi'a and Jenaat -- was the success of its own enterprises. For example, in the 1920s in response to the Great Depression and the collapse of the world pearl market, the families pressed (unsuccessfully) for a meaningful legislative council. Through such a council they hoped to gain a greater say in distribution of the state's revenues and to bolster Kuwait's services, particularly education, to increase their opportunities. For many generations, the Shi'a were used by the ruling family as a counterweight to the Sunni's dominance of commerce and as a link to the important markets in Iran. The Jenaat also played an important role in counter-balancing Sunni mercantile family influence by establishing themselves as indispensable technocrats needed to run Kuwait's state and private enterprises, but offered pragmatic opposition to the ruling family. Oil, Citizenship and Patronage As Keys to Power -------------- -- 4.(C) The Al Sabah's financial survival was long dependent on donations from the merchants and the revenue they collected from their limited ability to levy taxes. Beginning in the 1950s, however, the ruling family's control of oil revenue, their ability to alter the country's demographics by granting citizenship to favored tribes and internal divisions among the merchant families altered the balance of economic power KUWAIT 00000614 002 OF 003 in the ruling family's favor. The GOK's bailout of the 1982 Souk al-Manakh stock market crash enabled the Al Sabahs to put many of the Jenaat -- who had invested heavily in the market -- in their debt both literally and figuratively and to extend the ruling family's participation in business activities. For the first time, an Al Sabah was named to the board of the then Jenaat-controlled Gulf Bank after its solvency was restored by the GOK. (Note: Gulf bank was subsequently sold to other merchant interests, including the Al-Ghanem. The GOK's recent bail out of Gulf Bank has again given the government, if not the Al Sabah, an important share in the bank's operations.) 5.(C) During the Iran-Iraq War, the Shi'a merchants suffered serious financial setbacks from the deterioration of lucrative financial links with Iran and the GOK had to bail out the Shi'a controlled Al-Ahli Bank. As was the case with Gulf Bank, the Al Sabah demanded and received a seat on the Al-Ahli board in return for the GOK's financial assistance, thus demonstrating the Shi'a's increased dependence on the ruling family's patronage. The Sunni merchants were not as deeply affected by the tumult of the 1980,s but, some prominent families -- notably the Al-Karafi, Al-Ghanim and Al-Sager -- especially after liberation, began to rely more heavily on lucrative development contracts and state-granted monopolies to rebuild their fortunes. These financial arrangements were granted on a political basis, exacerbating the internal divisions that already existed within the Sunni aristocrat community and rendering the merchants, writ large, more vulnerable to the rise of the tribes. 6.(C) The Al Sabah in the 1950s began naturalizing conservative Bedouin tribesmen in order to dilute the demographic edge of the merchants and to increase the number of "service deputies" in the Assembly. The GOK also extended social services such as health care and education to the tribesmen and gave them jobs as clerks in the ministries. Over time this gave rise to a bureaucracy capable of obstructing business transactions conducted by the book and reinforced the economic relationship with the Al Sabah based on backroom deal-making. Merchants responded to the changes in society by attempting to insulate themselves socially and economically -- more and more they educated their children in private schools and sent them abroad for university education and, other than as ministers, declined to work for the government. (Note: The process this unleashed and the effect on Kuwaiti politics of the rise of tribalism is fully discussed in Ref F. End Note.) Merchants' Concern For the Future -------------- 6.(C) In a series of discussions with PolOff, Kuwaitis from a range of prominent merchant families expressed concern over the current state of the country. Though slightly buoyed by the most recent election results -- which served as a setback to tribal-Islamist influence -- their angst underscores the threat they see from Kuwait's long-running political stalemate both to their interests directly and to Kuwaiti economic reform and growth more broadly. Some contacts focused on the lack of new industrial projects in the last five years and the cancellation of potentially lucrative contracts by the government following pressure from tribalist and Islamist members of parliament. Another group complained that stifling bureaucracy was preventing establishment of new businesses and cutting into the profits of more established enterprises. Almost universally, merchant family interlocutors worried about the quality of Kuwait's education and the country's ability to stay competitive in a global market. Taken as a whole, these concerns represent fears that the merchants, ability to separate themselves from the lower classes is beginning to fail; and that the tribes, mounting influence and increasingly sophisticated manipulation of the state's political institutions is a greater threat to the merchants -- Sunni, Shi'a and Jenaat -- than it is to the ruling family. Comment: Where Does the Buck Stop? -------------- 7.(C) Kuwait's merchants are inclined to blame the problems they face on the ruling family's present weak leadership. They argue that the Amir and his closest allies within the family are not economically harmed by the current stalemate because their control over oil revenue ensures their fortunes regardless of the course the country takes. It is true to some degree that the government's present drift and indecisiveness result from the Amir's insistence that he retain the authority to make, or as is increasingly the case, not make crucial decisions. One cannot help but wonder, however, at the fact that Kuwait's urbane merchants have so KUWAIT 00000614 003 OF 003 thoroughly failed to compel the government to act upon their concerns, especially given the success that historically disadvantaged and unsophisticated tribesmen have had doing just that. The demographic balance of the country is part of the reason, but so is an increasing tendency towards political disengagement in the merchant class. It is much easier to obstruct an agenda than it is to advance one, especially in the Kuwaiti system. However, in contrast to the tribes, the merchants do not seem to have an agenda to compete with the tribes' vision. 8.(C) The Al Sabah may be less directly impacted by the current impasse than the merchants, but it is undeniable that the ruling family's primacy has been eroded recently and especially in the last three years. The Amir's carefully crafted ruling coalition -- stocked with loyal close relations of limited ability -- enables him to remain the ultimate decider on all major issues, but leaves the family vulnerable to accusations of corruption and mismanagement and ill-prepared to lead after he departs the scene. While the Al Sabah appear increasingly unable to provide coherent leadership, the family's political and economic self-interest may drive it increasingly to attempt to find common cause with the merchant class in the face of growing challenges from the tribesmen during the next several years. ********************************************* ********* For more reporting from Embassy Kuwait, visit: visit Kuwait's Classified Website at: http://www.intelink.sgov.gov/wiki/Portal:Kuwa it ********************************************* ********* JONES