Kuwait votes to bail out citizens' bank debts

KUWAIT CITY // Kuwait's national assembly has voted in favour of a bill that could require the government to take responsibility of 6.7 billion dinars (Dh85.8bn) of loans from its citizens. If the bill is enacted, the government would assume responsibility for citizens' loans and banks would be required to waive accumulated interest on them. The loans would then be rescheduled and the government would repay them over a 10-year period.

Despite the government's opposition to the plan, the bill received 35 votes in favour and 22 against. Kuwait's parliament and cabinet combine to vote on legislation in the country's national assembly. Mustafa al Shimali, the minister of finance, said during a parliamentary session yesterday that he rejected the bill because it was flawed, not applicable and "constitutionally suspicious". Mr al Shimali said it would lead to a mistrust of the country's legal and financial systems, and a lack of respect for contracts.

"The government does not agree about what is included in the draft law ? it is an inapplicable law in reality, with unconstitutional doubts in some of its articles," he said. Roudhan al Roudhan, the minister of state for cabinet affairs, said the cabinet would discuss its options at its next meeting and "the most likely option is that we will recommend that His Highness, the emir, rejects the bill".

Ali al Rashid, a politician who voted against the legislation, said the government had a right to reject the law because it did not achieve 44 votes in favour, or a two thirds majority. The issue was discussed in parliament on Tuesday but the speaker adjourned the session early after heated debates. He said the politicians had "raised irrelevant issues and things worsened to the extent that pursuing the discussion was no longer possible".

The central bank said in a statement on Tuesday the bill contained so many technical, legal and procedural sections that it could not be implemented and it added "a heavy and intolerable burden on the central bank to the extent that will result in total paralysis of its supervisory tasks". Only 3.3 per cent of citizens with loans have failed to honour their financial obligations, the bank said. The law stipulates that the government use interest from 8.5bn dinars in state deposits at local banks to bail out all consumer loans. As a result, the Kuwait Investment Authority, the emirate's sovereign wealth fund, would incur a loss on returns of 2.86bn dinars, Mr al Shimali told parliament last month.

The bailout programme would cost the government between 2bn dinars and 3.72bn dinars, he said. The issue of consumer debt, which amounts to nearly US$22,000 (Dh80,804) for every citizen in Kuwait, is a hot political topic. Citizens took advantage of liberal lending by banks that were flush with cash after years of high oil prices, but higher interest rates and a faltering stock market have more recently left many of them overwhelmed.

The indebted citizens are now trying to force the government to bail them out, as it has several times in the past. Most recently, a 500 million dinar "defaulters' fund" was set up last year to help Kuwaitis in financial strife. Many of the politicians were elected last year after promising to force the government to cancel or reschedule the loans. * with agencies @Email:JCalderwood@thenational.ae