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Mon 11 Aug 2008 10:53 PM

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Kuwait mulls wider subsidies in inflation battle

Gov't looking to target food prices, support food firms as inflation hits consumers.

Kuwait's government on Monday welcomed a committee's proposals on how to curb inflation, which recommended more subsidies of goods, and said it would study them further.

The world's seventh-largest oil exporter, the only Gulf Arab state without a dollar peg, is fighting record inflation hitting 11 percent in April and May, driven by food and housing costs. The recommendations, from a committee assigned to prepare a strategy to fight inflation, were studied at the cabinet's weekly meeting.

They include a wider range of subsidies and supporting some food firms in sectors such as livestock and flour mills to reduce prices for consumers. The plan also includes the creation of a consumer protection committee to prevent fraud and the export of subsidized products.

"The cabinet welcomed these recommendations, which will be discussed in detail in a special meeting during this week for final approval and referral to the relevant authorities for implementation," state news agency KUNA quoted Deputy Prime Minister Sheikh Mohammad Al-Sabah as saying. The cabinet also discussed recommendations to support the central bank's efforts to stop inflationary pressures through rationalising of credit policies for the banking sector and ensuring foreign exchange rates did not cause inflation.

The central bank, which has allowed the dinar currency to rise by more than 8 percent since dropping the dollar peg in May 2007, has toughened rules for consumer loans to discourage banks from lending too much. The government has also allowed cooperative supermarkets, where nationals can buy subsidised food, to import commodities directly, cutting out wholesale importers in an effort to reduce prices at the till, according to a decree published in the official gazette.

The Union of Cooperative Consumer Societies would also collect orders from its members to get better prices in bulk and report unjustified price increases in its stores to the government. A copy of the gazette was obtained by newswire Reuters on Monday.

Commerce and Industry Minister Ahmad Baqer has unveiled a package of measures including higher subsidies on basic food items. The government has raised salaries for citizens in the public service twice this year.

In June, Baqer also told parliament that Kuwait could work with fellow Gulf Arab states to invest in food production and farming abroad in an effort to secure food supplies amid high global commodities prices and fears of shortages. (Reuters)

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