Kuwait may unveil rescue plan soon
Kuwait City, January 23, 2009
Kuwait is expected to unveil new measures to shore up confidence in the economy, which may include a plan to help investment firms hit by the global crisis repay their debt.
The government is facing increasing calls to support troubled investment firms, which make up more than half the Gulf state's listed companies and have borrowed heavily from banks as they expanded rapidly during an oil boom in the past few years.
Kuwait's largest investment bank, Global Investment House, shocked the market earlier this month after saying that it had defaulted on most of its debt, while major Islamic firm Investment Dar has said it needed loans of up to $1 billion to refinance debt.
The central bank governor, Sheikh Salem Abdul-Aziz Al-Sabah, urged investment firms last week to draw up their own plans to deal with the impact of the global credit crunch, rather than expecting state help.
But a senior executive at an investment firm said they were still expecting a government-backed aid plan of some kind to be presented to parliament soon.
"The picture is grim. It's very bad in Kuwait but no one will talk," the executive said. "Finance is not a problem, short-term liquidity is the problem."
Investment firms listed on the bourse had a total debt of 6.3 billion dinars ($21.93 billion) in September 2008, Al-Joman Center for Economic Consultancy said in a research note.
A government source told Reuters a central bank-led economic task group was set to present a plan on how to support troubled firms to parliament for approval "in the coming few days".
"They are a range of measures to protect various sectors of the economy and help them deal with the impact of the financial crisis," said the source, speaking on condition of anonymity.
He declined to give details of the package but said the plan, designed to boost the whole economy, could also include a proposal to set up a state fund to buy assets from investment firms.
In November, Sheikh Salem said the government planned to set up a fund to buy assets at a discount from investment firms and issue them promissory notes enabling them to borrow from banks. No further details have been made public since.
Another local investment official said the government would have to do something but did not expect an all-out rescue plan for investment firms like the one for the Gulf Arab country's fourth-largest lender.
"The government will make sure that troubles of investment firms will not drag down banks or the credit market."
Kuwait last year stepped in to rescue Gulf Bank, after it was hit by derivatives losses. It also guaranteed bank deposits in a bid to boost confidence and allowed its sovereign wealth fund the Kuwait Investment Authority (KIA) to pump cash into the bourse.
The state has set up a market-maker fund to try to shore up confidence and liquidity in the bourse that has plummeted in recent months as the global crisis hit the Gulf. - Reuters