VZCZCXRO9846
RR RUEHDE RUEHDH RUEHDIR
DE RUEHKU #0404/01 1171326
ZNR UUUUU ZZH
R 271326Z APR 09
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC 3232
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 KUWAIT 000404 
 
SENSITIVE 
SIPDIS 
 
DEPARTMENT FOR NEA/ARP 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV KU
SUBJECT: AMIRI ECONOMIC ADVISOR ON ECONOMIC REFORM 
 
 ¶1. (U) Summary:  Dr. Yousef Al-Ebraheem told a mixed 
Kuwaiti-expatriate audience on April 22 that the global 
economic crisis had hit the GCC's oil exports and foreign 
assets hard, but that he was confident the countries were 
well placed to recover relatively quickly.  He praised the 
GoK's financial stability decree, but noted it was 
insufficient to promote recovery.  Dr. Ebraheem called for 
further government development and infrastructure spending, 
especially for smaller projects that would have a more 
positive impact on the local economy.  He also stressed the 
need for extensive economic and regulatory reform to help 
transform the Kuwaiti economy.  End Summary. 
 
Impact of the Crisis 
-------------------- 
 
¶2. (U) On April 22, Dr. Yousef Al-Ebraheem, Economic Advisor 
to the Amiri Diwan, told listeners at the Advocates for 
Western Arab Relations (AWARE) Center that the global 
economic crisis had hit GCC oil exports and foreign 
investments of the sovereign wealth funds hard.  In addition, 
GCC stock markets and real estate markets were under pressure 
and private sector economic activity (highly dependent on 
government spending) was slowing down across the GCC.  The 
private sector slowdown translated into sharp drops in 
expatriate labor as well as some increases in unemployment 
for nationals.  The drop in expatriate labor would have a 
"knock-on" effect on other sectors of the local economy, 
especially on the retail sector.  Facing budget constraints, 
most GCC governments (with Saudi Arabia a notable exception) 
were cancelling or delaying "major projects like K-Dow."  On 
the positive side, he noted, inflation was likely to decline 
across the region.  That said, he noted, Kuwait and the 
broader GCC were well placed to recover relatively quickly 
from the crisis, given their large currency reserves and high 
levels of government employment.  In Kuwait, he noted, "90% 
of Kuwaitis work for the government, and I assure you that 
the government can pay salaries." 
 
Government Response 
------------------- 
 
¶3. (U) Dr. Ebraheem briefly discussed the GoK's economic 
stability law, passed by emergency decree, which he said was 
necessary but not sufficient.  Noting that Kuwait needed to 
enact a series of reforms to meet the Amir's goal of 
transforming the country into a regional financial and 
commercial center, he said "sometimes it is easier to 
implement changes during tough times." 
 
-- Fiscal Stimulus - Dr. Ebraheem argued that the GoK needed 
to increase its investment spending and needed to emphasize 
small/medium sized projects rather than mega projects.  He 
noted that the smaller projects were more likely to benefit 
the local economy, since the larger development projects -- 
by necessity -- would be foreign run, which would disburse 
more of the fiscal stimulus outside Kuwait.  In response to a 
question about the planned cuts in expenditures for the FY 
2009/10 budget particularly in construction expenditures, he 
said he fully expected several major projects to be tendered 
in the June/July timeframe, including:  Shaykh Jaber bridge, 
phase 2 of the 1st Ring road, the design for the 8th Ring 
road, and the re-tendering of the Shaykh Jaber hospital.  He 
stressed, however that the capital spending needed to benefit 
the entire economy, not just certain sectors 
 
-- Monetary Policy - He suggested that Kuwait's Central Bank 
needed to continue to gradually and cautiously reduce its 
discount rate over the next six months from its current rate 
of 3.5%.  (Note:  The Central Bank has cut the rate three 
times since October 2008 by 75 basis points.  End note.) 
 
-- New funds - He suggested that the GoK create a new fund to 
finance small and medium enterprises to encourage the private 
sector.  In addition the GoK needed to revise the regulations 
for the Industrial Bank of Kuwait to encourage new 
businesses. 
 
-- Public private partnerships - The current BOT law has 
"shortcomings" and the GoK needs to encourage public private 
partnerships especially in the areas of water, electricity, 
and housing. 
 
-- Regulatory reform - In order to fulfill the Amir's vision 
of a regional financial and commercial center, Kuwait needed 
to reform its regulatory structure.  It needed to establish a 
telecommunications regulatory authority, a capital markets 
authority, and a transportation/port authority.  Although the 
financial stability law took some steps to support commercial 
 
KUWAIT 00000404  002 OF 002 
 
 
reform (by permitting the creation of convertible bonds and 
preferred stocks) the commercial law needs to be updated. 
 
-- Land management - Dr. Ebraheem argued that Kuwaitis could 
not create economic activity without land and the government 
currently owned over 90% of the land.  Fixing this problem 
would be critical. 
 
-- Increase electricity pricing - Dr. Ebraheem stressed that 
Kuwaitis needed to develop their energy conservation 
consciousness, arguing that the oil used to generate 
electricity represented forgone income for Kuwait.  He 
commended the Ministry of electricity and Water's efforts to 
increase awareness, but commented that the only way to change 
behavior would be to increase pricing from the current rate 
of 2 fils per kilowatt hour (3/4 of a cent).  He noted that 
the subsidy for the neediest Kuwaitis could be maintained via 
a tiered pricing structure that would increase pricing 
depending on usage. 
 
Comment 
------- 
 
¶4. (SBU) Although many of Dr. Ebraheem's points have been 
made in public or private by other GoK officials (the Central 
Bank Governor has frequently called for fiscal stimulus, for 
example), this is a comprehensive and open compilation of the 
reforms the GoK needs to take, especially coming from the 
Amir's personal economic advisor.  It would be a bit too much 
like "Kremlin watching" to take Dr. Ebraheem's public remarks 
as a definitive road map.  It is reasonable to presume, 
however, that all these factors are being considered. 
Notably absent in this discussion of needed reform were the 
political steps needed to bring a fractious National Assembly 
on board and to mobilize the GoK to act.  End Comment. 
 
********************************************* ********* 
For more reporting from Embassy Kuwait, visit: 
visit Kuwait's Classified Website at: 
 
http://www.intelink.sgov.gov/wiki/Portal:Kuwa it 
********************************************* ********* 
JONES