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DE RUEHKU #0129/01 0421350
ZNY CCCCC ZZH
P 111350Z FEB 10
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 4604
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L KUWAIT 000129 
 
SIPDIS 
 
STATE FOR NEA/ARP, S/CT, EEB/IFD/OMA 
TREASURY FOR DEPUTY SECRETARY WOLIN 
 
E.O. 12958: DECL: 02/11/2020 
TAGS: EFIN PREL PTER KTFN OVIP KU
SUBJECT: KUWAIT: SCENESETTER FOR DEPUTY SECRETARY OF 
TREASURY WOLIN 
 
REF: A. 09 KUWAIT 951 
     ¶B. 09 KUWAIT 882 
     ¶C. 09 KUWAIT 1037 
     ¶D. 09 KUWAIT 431 
     ¶E. 09 KUWAIT 921 
 
Classified By: Economic Counselor Oliver B. John for reasons 1.4 (b & d 
). 
 
¶1. (SBU) Ambassador and Mission Kuwait cordially welcome the 
February 16-18 visit of Deputy Secretary of Treasury Neal S. 
Wolin. 
 
¶2.  (SBU) Situated at the nexus of Iraq, Iran, and the 
Kingdom of Saudi Arabia, Kuwait is a constitutional emirate 
with a freely-elected -- and rambunctious -- parliament. 
Although slightly smaller than the state of New Jersey, 
Kuwait is an important oil exporter and international 
investor.  Literacy is among the highest in the Arab world 
and many Kuwaitis, particularly the Kuwaiti elite, have 
studied in, or traveled to, the United States. 
 
US- Kuwait Security Relations 
 
¶3.  (C) Our strong bilateral relationship is founded upon 
close security ties, which are manifested today in Kuwait's 
role as a key military training and logistical support hub 
for Operation Iraqi Freedom (OIF).  Kuwaiti support for the 
U.S. military presence has included, in material terms alone, 
over USD 1.2 billion annually in such benefits as free access 
to bases, waived port and air support fees, customs waivers, 
subsidized fuel and other services.  Kuwait also provides the 
U.S. military with essentially open access to ten bases and 
access to its 2,250 sq/km Udairi Range facility.  Over 20,000 
U.S. military personnel (including some 5,000 contractors) 
are located at bases and facilities in Kuwait.  In CY 2008 
alone, some 1,750,000 U.S. forces transited through Kuwait, 
either en route to Iraq or other deployment locations or back 
to the U.S.  U.S. military operational flexibility in Kuwait 
has been largely governed by the favorable terms of a Defense 
Cooperation Agreement (DCA) with the GoK signed in 1991 and 
extended for ten years in 2001. 
 
Economic Overview 
 
¶5.  (SBU)   Kuwait has the third largest economy in the GCC, 
behind Saudi Arabia and the UAE and controls about 9 percent 
of the world's proven oil reserves.  Oil makes up around 95% 
of the government's revenues, and the Kuwaitis use very 
conservative figures for budgeting purposes.  In the first 
eight months of the fiscal year (through November), Kuwait 
earned approximately  USD 36.7 billion from energy exports, 
turning a projected deficit into what will almost certainly 
be the 11th straight year of a budget surplus.  Kuwait,s 
savings from surplus revenue provided a safety net for the 
financial sector during the recent global economic crisis, 
but Kuwait still suffered some high profile problems; 
including the bail out of Gulf Bank, the country's third 
largest bank, high profile debt restructurings for Global 
Investment House, and the first default on an Islamic Sukuk 
in the region. 
 
¶6.  (SBU) Although high oil prices and significant reserves 
have helped Kuwait withstand the worst effects of the global 
economic downturn, it faces a longer term problem.  The 
economy is heavily dependent on oil revenues and government 
largesse.  The demographic shift from &have8 to relative 
&have nots8 of the Bedouin tribal community plays out in a 
generally contentious parliamentary - government 
relationship.  For many years, despite the Amir,s &vision8 
of diversifying the economy away from a dependence on oil and 
gas, governmental-parliamentary squabbles and a generally 
poor business climate have stalled much progress.  There have 
been recent movements that are leading to cautious optimism 
among the Kuwaiti business community including: parliamentary 
passage of a 4-year $104 billion development plan and a law 
to create an independent capital market authority to regulate 
Kuwait,s stock market.  In addition, the government rejected 
a highly populist bill that would have written off interest 
on consumer loans.  On the monetary side, the Central Bank 
just lowered its discount rate by 50 basis points to 2 and a 
half percent to open up the credit markets. 
 
Oil Committed to Getting to 4 mmb/d by 2020 
 
¶7. (SBU) Kuwaiti officials have stated a commitment to 
increase sustainable oil production capacity to 4 million 
barrels per day (mmb/d) by 2020.  Kuwait Petroleum 
 
Corporation is planning to invest approximately USD 80 
billion over the next five years (divided between upstream 
and down stream investments) in furtherance of that goal. 
The plans include drilling over 500 new wells and developing 
the related infrastructure as well as upgrading Kuwait's 
existing refineries to produce cleaner fuels and to tender a 
4th refinery to produce low sulfur fuel oil for Kuwait's own 
power plants.  That tender was cancelled under parliamentary 
pressure.  Kuwait is currently importing LNG during the 
summer months and has been in long -- but unproductive -- 
discussions with Iran, Iraq, and Qatar to import natural gas. 
 
 
Investments 
 
¶8. (SBU) Kuwait,s Sovereign Wealth Fund, the Kuwait 
Investment Authority is estimated to hold over USD 200 
billion making Kuwait a major international investor. 
Although KIA does not disclose its asset allocation strategy, 
it is a major investor in the U.S. (as are Kuwaiti private 
sector investors).  KIA officials have stated that they are 
looking to grow their Asian portfolio as they see long term 
growth potential there.  KIA officials have also said that 
changes to the U.S. tax code in the late 1990s caused them to 
divest from their U.S. real estate holdings.  According to 
one KIA official, real estate investments in the U.S. are 
"zero." KIA reportedly sold its stake in Citi at a profit of 
around USD one billion and invested USD 750 million in the 
U.S. asset Blackrock. 
 
¶9.  (SBU) On the flip side, Kuwait attracts very little 
inward investment.  The investment climate in Kuwait is 
generally regarded as poor and -- with the exception of Dow 
Chemical and Citigroup -- there is little U.S. direct or 
portfolio investment in Kuwait.  The World Bank Doing 
Business Indicators report of 2010 ranked Kuwait 61 out of 
183 countries in terms of ease of doing business and 137 with 
respect to difficulty in starting a business.  In February, 
Kuwait passed a law to establish a Capital Markets Authority 
to regulate the Kuwait Stock Exchange (KSE).  While the KSE 
is one of the oldest trading markets in the region, it was 
the last in the Gulf to have an independent regulator. 
According to most market participants, the KSE is an opaque 
market, rife with insider trading.  In general, the market 
can fluctuate widely on rumors and innuendo.  The new 
regulatory framework is aimed at fixing some of these 
problems, but the question will be how well the rules are 
implemented and enforced. 
 
Financial Crimes:  Money Laundering and Terrorism Financing 
 
¶10.  (C)   In October 2009, post proposed a strategy of using 
positive engagement to move the GoK forward on anti-money 
laundering and terror finance issues.  Recent interagency 
(State, Treasury and Justice) support of the December 
National Anti Money Laundering (AML) conference, the feedback 
we provided the GoK about the draft AML law, and separate 
visits from Treasury A/S Cohen and C/T Benjamin were timely. 
GoK interlocutors have been generally receptive to the idea 
of an enhanced bilateral training programs aimed at combating 
financial crimes.  The proposed interagency capacity building 
program has already begun to build a constituency among 
ministries who currently have financial crimes oversight 
(Ministry of Social Affairs and Labor, Ministry of Commerce, 
Ministry of Justice, Customs and Borders, and the Central 
Bank), as has our willingness to help the GoK take the 
necessary steps for a favorable Financial Action Task Force 
(FATF) evaluation. 
 
¶11.  (C) While incremental progress is possible within the 
existing legal framework, passage of an amended AML/CTF law 
is essential to give GoK authorities the necessary legal 
tools to effectively combat terror financing and other 
financial crimes.  According to GoK officials, the amended 
law no. 328 will address many of the inadequacies of the 
current law including the following: Definitions for 
Terrorism and Terrorism Financing, Re-defining the Financial 
Intelligence Unit (FIU) and its assignments to meet FATF 
standards, and expanding the definitions for money laundering 
crimes.  The law which has already been blessed by the 
Central Bank, Ministry of Finance, and Legal Advisors, was 
recently passed to the Financial Committee within the 
National Assembly for review.  Central Bank officials have 
told us that they have communicated to the parliament's 
Financial Committee that this is an important bill, but some 
parliamentarians have said that they do not see it as a GoK 
priority. The Ambassador recently stressed again to the FM 
the importance we attach to this legislation as an indication 
 
of GoK seriousness in addressing this problem. 
¶12.  (C) Despite weaknesses in the law, Kuwaitis have made 
progress in:  improving charitable oversight domestically and 
abroad (ref a), and in regulating the gold and jewelry 
markets (ref b).  We have seen two successful terrorist 
finance-related prosecutions in 2009, but sentences for 
convicted financiers and facilitators have been light and 
have been pursued under a limited criminal law.  Two cases in 
2009 include the prosecution (and sentencing) of UNSCR 1267 
designee Mubarak Al-Bathali on January 27, 2009 (ref d) and 
Ltc. Khalil Al-Ghaith for terrorist financing and 
facilitating in August 2009 (ref e).  The GoK is also engaged 
in several public awareness campaigns including the impact of 
money laundering and a de-radicalization campaign 
highlighting the negative impact of extremism.  The issue of 
the U.S. designated Kuwaiti Charity the Revival of Islamic 
Heritage Society, continues to be a contentious one.  The 
Kuwaiti position is that the charity does good work and acts 
as a bulwark against Iranian efforts to buy influence in 
poorer Sunni areas.  In addition, the GoK has argued that the 
USG has not provided any actionable evidence (as opposed to 
intelligence) to justify legal actions against RIHS. 
Renewable Energy, Energy Efficiency and Nuclear Power 
 
¶13. (SBU) Kuwaiti officials have expressed interest in 
renewable energy and energy efficiency cooperation to address 
Kuwait's growing power demand, projected to increase at a 
rate of 6% to 8% per year (ref c).  They have expressed their 
hope that Kuwait will generate at least 10% of Kuwait's power 
from renewable energy by 2020, and have outlined a plan to 
evaluate wind and solar power as options.  The Kuwait 
Institute for Scientific Research (KISR) is currently 
evaluating a proposal by the U.S. National Renewable Energy 
Lab to take a broad brush look at developing renewable energy 
in the country, but is concerned about the cost.  For its 
part, the Kuwait Petroleum Corporation is in the initial 
phases of evaluating carbon capture technology as a 
commercially viable reservoir management tool, which would 
both reduce CO2 emissions and enhance Kuwait's oil recovery. 
Despite these initiatives, however, we understand that 
Kuwait, following GCC consensus, does not plan to associate 
itself with the Copenhagen Accord. 
 
¶14. (SBU) Realizing that renewable energy is not likely to be 
able to meet Kuwait's baseload needs, Kuwait has set up a 
committee, headed by the Prime Minister, to examine the 
potential for developing peaceful nuclear power.  The 
Kuwaitis are taking a very careful approach to evaluating 
resources both economic and human required to regulate and 
run a nuclear power program.  Even if Kuwait decided not to 
develop its own domestic capability, the steps would be 
important for any GCC nuclear power projects. 
Meetings 
¶15.  (SBU) We have confirmed meetings with Kuwait Investment 
Authority Managing Director, Bader Al Saad; Minister of 
Finance, Mustafa Al Shamali; Central Bank Governor, Sheikh 
Salem Abdulaziz Al Sabah; and the Economic Advisor to the 
Emir, Dr. Yousef Al Ibrahim.  Ambassador will also be hosting 
a reception in your honor with members of the financial 
community.  Unfortunately, the Prime Minister, Foreign 
Minister, and Minister of Interior will not be available as 
the Amir has invited the Kuwaiti cabinet for a luncheon 
"offsite" on February 17. 
 
********************************************* ********* 
For more reporting from Embassy Kuwait, visit: 
visit Kuwait's Classified Website at: 
 
http://www.intelink.sgov.gov/wiki/Portal:Kuwa it 
********************************************* ********* 
JONES