Kuwait on Long, Bumpy Journey Toward Stability : Reconstruction: The economy, stopped cold by the Iraqi invasion, is starting a gradual recovery. But, like the tiny country itself, it may never be the same.
Trapped in the flickering beam of a pocket flashlight, the closing prices of the Kuwait Stock Exchange are posted on the north wall of the vacant trading floor, an anarchy of numbers in a hushed economic mausoleum, suspended in time.
Aug. 1, 1990, 6:30 p.m., Kuwait City: The U.S. dollar closed at 0.287 Kuwaiti dinars, the pound at 0.533 and the Deutschmark at 0.180. National Bank shares were selling at 0.990 dinars on a volume of 1.6 million shares, the Kuwait Investment House 0.455, Kuwait Cement 0.220.
The balconies above the floor, normally filled with shouting traders, stand empty. Desk calendars are penciled in with appointments through the first week in August. Coffee-stained cups stand next to blank computer screens. A brown potted palm sways delicately to the floor, its fronds resting on the chilly marble tile.
Kuwait’s fabled stock exchange, the stage upon which played some of the most energetic moneymaking--and spectacular financial ruins--of the frantic Persian Gulf oil boom years, is stuck like a broken record on Aug. 1, 1990, the day the economy of the emirate of Kuwait came to a halt.
Now the steel-and-glass towers of Kuwait City’s plush financial district stand dark and empty, their lower windows shattered and their records plundered. Row on row of shops, virtually every private business in the country, remains closed and padlocked. Industrial parks are abandoned. Refineries are shut down. Food, gas and water are free; there is, for all practical purposes, no currency.
“We are facing economic disaster,” said the governor of Kuwait’s Central Bank, Sheikh Abdulaziz Salem al Sabah. “Production in all sectors ceased on Aug. 2. Unbelievable looting took place by the Iraqi regime. Not a single economic or financial entity escaped the Iraqi brutality. Both the private and public sectors have been seriously hit.”
A diplomat in the Kuwaiti capital added: “There’s never really been a situation quite like this where an occupying power has come in and totally shut down an economy.”
In the weeks since Iraqi troops left Kuwait, businessmen and government officials have been picking through the financial ruins, trying to assess the damage and figure a way of kick-starting the economy again. The news, so far, has been mixed.
Many banks have at least their computer records intact, thanks to employees who smuggled computer discs and tapes out of the country or hid them in safes, allowing the banks to determine how much money customers had in their accounts before Aug. 2.
Most branch banks were looted and destroyed. But the cash taken from each, averaging perhaps $200,000, was negligible; $950 million in gold bullion and commemorative coins is missing from the main vault at the Central Bank, which was otherwise relatively undamaged.
Banks with a major share of their holdings in foreign assets are likely to survive the crisis relatively unscathed. But financial institutions with portfolios dependent on local businesses and real estate--looted and plundered by Iraqi forces during their seven-month occupation--will need major help from an already cash-strapped government to survive.
Private businesses by the hundreds have had their inventories wiped out, and insurance does not usually cover war losses.
“Businesses are out of business. The banks are bankrupt. We’ve got a lot of local loans, and who’s going to pay them? Maybe we should take them to court and put everybody in jail,” Abdulaziz al Sultan, chairman of the board of Gulf Bank, said gloomly.
The government took the first step Tuesday by announcing that it will open the banks today for limited domestic transactions and introduce a new Kuwaiti currency, replacing the old Kuwaiti dinar, hundreds of millions of which were looted by the Iraqis.
Unexpectedly, the Central Bank governor said the new dinar will be valued at roughly its pre-invasion exchange rate, about $3.30, heading off fears of a substantial devaluation that would fuel soaring inflation even further as a feverish reconstruction period commences.
How the government will maintain the old rate in the absence of any oil revenues over the next year and substantial government costs for reconstruction is unclear; most Kuwaiti economists have said they think that a rate closer to $2.50 will be more realistic. Sabah said the dinar will continue to be linked to the currencies of Kuwait’s major trading partners, principally the United States, Britain, Germany and Japan.
The other good news was that government officials announced that they will return the personal bank accounts of Kuwaitis to their Aug. 1 levels and will pay each citizen who remained in the country during the occupation a grant of 500 dinars, about $1,500.
The bad news is they will not allow those who hold old Kuwaiti dinars to trade them in for the new currency, a regulation allegedly intended to prevent Iraqis from cashing in on stolen money. The rule, however, also affects speculators who bought Kuwaiti dinars when they had plummeted in value and a large number of Kuwaitis who stashed away thousands of dinars under beds, in air-conditioning ducts, even in their yards.
What had been one of the most sophisticated economies in the Middle East has been reduced to little more than barter. Filipino housekeepers in the hotels agree to do laundry for guests on the side in exchange for cans of beef stew and spaghetti. Cars are lent in exchange for gas generators. Food, gas and water are handed out free by the government.
Still, in a country with a merchant tradition that goes back hundreds of years, the signs of private enterprise are budding like spring tulips. Wealthy merchants who were outside of the country during the occupation have reportedly ordered large inventories of consumer goods and are waiting only for introduction of the new currency to begin bringing it in, diplomats say.
Streetside stands of goods hidden by merchants are beginning to pop up on corners. A Kuwaiti who brought in a truckload of generators from Saudi Arabia is selling them for four times what he paid for them.
At a market in the Hawalli District, one of the only shops open anywhere in Kuwait, shoppers can buy vinegar, pickles, chili peppers, rice. Miraculously, a whole tray of Birdseye frozen vegetables stands outside in the noonday sun for customers’ inspection.
Mustafa, the storekeeper, said he will take any currency the customer comes in with: Kuwaiti dinars, Saudi riyals, U.S. dollars, British pounds, Iraqi dinars. Mostly, he says, the customers have Iraqi dinars.
The Iraqis during the occupation forced Kuwaitis to trade in their dinars one-for-one for the Iraqi currency, worth about 30 cents compared to the dinar’s $3.30.
“As you see, everybody wants to take food and get rid of the Iraqi dinar,” said Mustafa, shrugging when asked if accepting it now might not be good financial planning. “As you see, all of them, all the people have Iraqi dinars. They want to eat. What we can do? It might be after 10 years the Iraqi dinar will be good!”
He surveyed the crowed pushing through the tiny market. “Otherwise, it will be a disaster for me, as you see.”
Since the last century when Kuwaiti merchants parlayed spare boat parts into fortunes, the merchant class has been one of the linchpins upon which the country rests. The al Sabah family became constitutional monarchs after independence in the early 1960s only with the consent of Kuwait’s powerful merchant families, and analysts now say the private sector, though plundered, can be expected to begin reinvigorating Kuwait quickly.
“They understand money, where it goes, how it’s used,” one diplomat said. “I think you’re going to see a lot of financial sectors and big merchants back to normal in a big way very soon.”
Some Kuwaitis are already complaining that Kuwaiti business has been short-shrifted in the massive rebuilding project already under way and estimated to reach $80 billion or more. The government has indicated that the majority of contracts will go to American and British companies in compensation for the coalition forces’ role in liberating Kuwait.
But some Kuwaiti businessmen say that is a recipe for continued dependence on foreign help.
Three of Kuwait’s largest architectural engineering firms sent representatives to Washington and to the Kuwaiti government to discuss reconstruction, but as yet have not been awarded a single contract. The huge contract for dealing with an estimated 530 oil well fires throughout the country is being directed by U.S.-based Bechtel Corp.
Kuwaiti businessmen complain that this will leave Kuwait as it was before the war, depending on foreign companies to keep the country running. “So we will be even more dependent on outsiders, as usual,” one businessman said. “They come and they do the work, they finish, they leave. And we have to pick up the pieces.”
Another said: “We hear the government just closed a contract for $85 million to clean Kuwait. Why? We can clean Kuwait.”
In the process of rebuilding, Kuwaitis are moving to reduce their traditionally heavy dependence on foreign labor, hoping that lessons in self-sufficiency learned during the occupation will mean Kuwaitis will be willing to do jobs they previously shunned in favor of hiring foreigners.
The result, in the past, was that of a country of 2 million, only about 800,000 were Kuwaitis; the rest were Palestinians, Pakistanis, Egyptians, Indians and Filipinos, most of whom fled with the arrival of the Iraqis. Many Kuwaitis accuse Palestinians of collaborating with the Iraqis.
There is talk now of “a new Kuwait,” and that means a Kuwait with a majority of Kuwaitis. The problem, say many, is that Kuwaitis are not yet capable of assuming the many technical jobs performed by Palestinians and Asians, workers in short supply.
Filipinos and Indians, who earned perhaps $2 an hour before the occupation, now command $8 an hour and up. Banking officials say they will not be able to get the banking system operating fully unless they can lure large numbers of Palestinians back to work. The hospitals often depend on Palestinian doctors and nurses.
“I think the worst outcome of this occupation is the loss of the human infrastructure,” Sultan said. “The people we have trained basically over the last 25 years, we have lost most of them.”
Replacing them with Kuwaitis could be expensive. A foreign national might accept 150 to 250 Kuwaiti dinars a month salary; a Kuwaiti would expect 500 dinars for the same job.
But some Kuwaiti economists say the country may be saving in the long run by phasing out foreign workers since it is the government that absorbs much of the overhead for keeping them on.
“If I told you you have to provide health insurance for your maid or your driver, you’re going to think twice about bringing them,” said Nabil al Loughani, management and finance professor at Kuwait University. “One of the positive things, if there are any positive things, from this invasion is that many of the expatriates have left the country. . . . Seventy percent of them are low-skilled laborers. They don’t contribute to the development of the country. The country, I think, is going to capitalize on the fact that most of those expatriates have left.”
Financing the public-sector reconstruction tab remains one of the biggest open questions. Most analysts predict that Kuwait will be reluctant to sell off too much of its estimated $100 billion in foreign assets and instead will turn to international lenders. Kuwaiti financial officials in recent weeks have been rumored to be negotiating a financing package of up to $20 billion, though the government has been silent on the subject.
Oil earnings will not commence again for at least a year, petroleum officials say, although Kuwait could be producing up to 50,000 barrels a day of oil within the next 60 days--enough to produce electricity for the country and part of the rest of its domestic oil needs.
“The Iraqis set out to remove Kuwait from the international oil market, and they’ve done so. The wells and the production facilities are damaged beyond belief,” one analyst said.
Surveying the months ahead, Nabil al Nassar, manager of domestic and international new issues for the Kuwait International Investment Co., said: “There are so many obstacles that I don’t know where we should start from, and when we start, I am not sure what we are going to find.”
But the step of opening the banks is, analysts say, at least a beginning. U.S. Army Maj. George Thomas, who is advising the Kuwaiti government on public finance, predicted that the bank openings and the issue of new currency will have the private sector off and running in the next three months. “This is the first and most important sign that commerce is going to be running again soon.”