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Wed 2 Jul 2008 05:00 PM

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Kuwait economic reforms in jeopardy

Gov't agreement to MPs' demands to raise benefits for Kuwaitis risks upsetting reforms - analysts.

Kuwait's government may have averted a new confrontation with parliament by hastily agreeing to raise benefits for Kuwaitis but analysts say the move risks exacerbating inflation and upsetting economic reforms.

Parliament Speaker Jassem Al-Kharafi and Prime Minister Sheikh Nasser Al-Mohammad Al-Sabah exchanged warm words and hopes for cooperation after a turbulent month as the Gulf Arab state's assembly closed for the annual summer recess last week.

Kuwait's parliament, which has a history of challenging the government in a region dominated by autocratic rulers, is not due to meet again until Oct. 21.

But analysts said its decision to raise state salaries for the second time since February and to help indebted Kuwaitis have undermined pledges to cut a welfare state, diversify the economy away and attract more investment.

"They opened the door for more demands. It will be a long headache for the government," said Ali Al-Baghli, a former oil minister. "We hope that the government and parliament will work on important issues after the summer recess."

Kuwait, the world's seventh-largest oil exporter, wants to emulate the success of neighbouring Dubai and Bahrain, which have reduced their reliance on oil by transforming themselves into financial and commercial centres.

But despite calls by Kuwait's ruler, Emir Sheikh Sabah Al-Ahmad Al-Sabah, for both the legislative and executive branches to work together, key bills, including one to set up a financial regulator have been repeatedly delayed.

Lawmakers resumed work in June after new elections ordered by the country's ruler to end a prolonged row with the cabinet.

But the new assembly has focussed largely on demands for more state benefits as inflation hit 10 percent in February and March, a record high, due to rising housing and food prices.

"A majority of MPs entered parliament without knowing the basics of political work, thinking their job is about shouting, and the more they shout the more people see them as strong MPs," daily As-Seyassah said in an editorial.

Because political parties are banned in Kuwait, parliament sessions are often uncoordinated, with deputies flooding the floor with bills, often accompanied by long speeches.

Apart from the bill to set up a regulator, a multi-billion scheme to explore northern oil fields and a bill to privatise more state companies have long been stuck in parliament.

A survey by the Al-Joman Centre for Economic Consultancy found that 55 percent of Kuwaitis did not expect the new parliament to have a positive impact on Kuwait's economy.

Eighty percent said they saw no serious efforts to transform Kuwait into a financial hub. (Reuters)