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19-06-2012 - Gulfnews

Political row in Kuwait leaves economic plans on ice

A Kuwaiti walks into a lost and found bureau and says he is searching for the Gulf state's vaunted 30 billion dinar ($107 billion; Dh392.9 billion) economic development plan.

The cartoon in the Kuwait Times captures frustration at a long-running political row which has engulfed the major oil producer, distracting from economic reforms and stalling legislation.

Political infighting between the parliament and government has forced the resignation of two cabinet ministers in less than a month and threatens to draw in more of their cabinet colleagues.

The minister for social affairs and labour resigned this week and the finance minister quit last month after a questioning session in parliament led by opposition lawmakers. The opposition MPs, who hold a majority in parliament, are mulling similar sessions for the oil minister, interior minister and defence minister over different issues. Such grillings may end in a confidence vote which could force ministers out of office.

"The political situation in Kuwait is hindering economic development because to unleash Kuwait's economic potential you really need to make progress on the development plan," Farouk Soussa, Middle East chief economist at Citi in Dubai, said.

The development plan aims to draw in private investment for huge infrastructure projects and help Kuwait's economy diversify. The larger multi-billion-dollar projects include a new airport terminal and oil refinery.

Progress is slow because by-laws needed for the plan have to pass through parliament and the current political gridlock makes this impossible, Soussa said.

"We think there are going to be more resignations and that we are going to see further political instability."

Opposition, mainly Islamist MPs, emboldened by regional upheaval and their electoral success, have been using these tactics more frequently and making demands for cabinet posts.

At present Kuwait's ruler picks the prime minister who in turn selects a cabinet. Political parties are banned so MPs rely on forming blocs.

Tensions between Kuwait's elected parliament and the cabinet have brought years of political turmoil to the Opec member state but the current crisis, less than four months after a snap election, has developed quickly even by Kuwaiti standards.

Mustafa Al Shamali resigned as finance minister last month after opposition lawmakers accused him of failing to deal with alleged financial irregularities in his departments.

Shamali, who had served as finance minister from 2007, denied the allegations of mismanagement but quit rather than face a parliamentary confidence vote. Kuwait's minister for social affairs and labour, Ahmad Al Rujaib, resigned ahead of a questioning session scheduled for next week.

It was a similar fight between MPs and the cabinet which led to the dissolution of the chamber in December and a snap election that brought in the fourth parliament in six years.

Dow Deal

Some MPs have said they want to question oil minister Hani Hussain in parliament after an arbitrator's ruling last month that Kuwait's state-run chemical company must pay Dow Chemical Co $2.16 billion for wrongly cancelling a deal.

The ruling against Petrochemical Industries Co (PIC) is final and believed to be one of the largest ever arbitration awards. Kuwait pulled out of the $17.4 billion "K-Dow" joint venture with the US company as the global economy sunk into a deep recession nearly four years ago.

Kuwait's losses from the project amount to more than just the compensation sum, said Nasser Al Nafisi from the Al Joman Centre, an independent economic consultancy based in Kuwait.

The country has lost an estimated $6-10 billion in business and damaged its image with an important trade partner, he said, adding, "The negative consequences are both visible and invisible."

Hussain, a former chief executive officer of Kuwait Petroleum Corporation, has declined to comment on the case.

As for the development plan, which is spread over four years until 2014, Nafisi said it was only about 15 per cent complete with work on smaller projects and general maintenance rather than progress on the big ticket items.

The development plan timetable is at risk unless Kuwait's government and parliament push through an agenda which improves the investment climate, the International Monetary Fund said in a report last month.

Implementation of the plan has suffered from "red-tape bureaucracy, an outdated legislative base, deficiencies in laws that have been passed in recent years, and holdups in passing new legislation," it said.

While the row between Kuwait's cabinet and parliament has been a major factor in stagnant policy making and reform, it has also led to a lack of fiscal dynamism, said Liz Martins, senior Middle East economist at HSBC in Dubai.

"For better or worse, this has tended to leave Kuwait with some of the largest budget surpluses in the Gulf, and as such, oil prices would have to drop quite substantially before it became fiscally vulnerable."

Kuwait has posted fiscal and external surpluses for thirteen years in a row and can absorb the current fall in the oil price despite its large spending plans. Crude traded under $100 a barrel last week.

But analysts say this level of comfort means it lacks a sense of urgency to implement the development plan and longer-term reforms.

Kuwait is not translating its healthy fiscal position into economic progress, said economist Jasem Al Saadoun, director of the independent Al Shall Centre in Kuwait.


Other sources on GCC civil society and human rights