Parliament backs legislation to help cash strapped nationals despite gov't opposition.
Kuwait’s parliament on Wednesday approved a bill that would force the government to buy all 6.7 billion dinars ($23.3 billion) of consumer loans, write off the interest and reschedule the payments.
The plan, which the government opposes and says is unconstitutional, passed with 35 votes in favour and 22 against in the final round of voting, speaker Jassim al-Kharafi said.
The government plans on asking Emir Sheikh Sabah al-Ahmed al-Jaber al-Sabah to reject the law, Deputy Prime Minister for Economic Affairs Sheikh Ahmed al-Fahad al-Sabah said on Jan. 4, the state news agency KUNA reported.
The central bank said yesterday that the bill includes legal and technical violations and can’t be applied, Kuna reported, citing a bank statement.
Kuwaitis stepped up borrowing as a decade-long oil boom through 2008 fuelled growth. Like spenders worldwide, Kuwaitis used bank loans to pay for homes, cars and vacations and many struggled to meet payments. The issue of bailing out debtors led to political rows in the oil-rich country, which has run a budget surplus for the past decade.
“You are rewarding careless financial behavior, depleting limited resources and distributing it to people just to consume,” Jassim al-Saadoun, head of Al-Shall Economic Consultants in Kuwait, said by telephone. “It’s a bad moral message.”
Standoffs between the government and parliament in the last few years have stalled economic policy changes and the passage of key projects, including a plan to bring international oil companies to develop fields in the country’s north.
Lawmakers opposed a joint venture with Midland, Michigan-based Dow Chemical Co, which was scrapped in December 2008, and a planned fourth oil refinery that was put on hold in March.
Prime Minister Sheikh Nasser al-Mohammed al-Sabah survived a non-cooperation vote in parliament on Dec. 16 which could have led to his ouster or the dissolution of parliament. Kuwait held parliamentary elections last year and Sheikh Nasser was re- appointed prime minister on May 20 to head his sixth government since 2006.
The law can also be rejected by the government, although the assembly can overrule that with a two-thirds majority. The government had proposed expanding a 500 million-dinar “defaulters fund” already set up to help Kuwaitis unable to repay loans, as a compromise.
The law stipulates that the government use interest from 8.5 billion dinars in state deposits at local banks to bail out all consumer loans. As a result, Kuwait Investment Authority, the emirate’s sovereign wealth fund, will incur a loss on returns of 2.86 billion dinars, Finance Minister Mustafa al- Shimali told parliament last month.
The bailout program will cost the government between 2 billion dinars and 3.725 billion dinars, al-Shimali said.
Kuwait is the fifth-biggest OPEC producer. Its benchmark stock index dropped 10 percent in 2009.