Kuwait: Oh Bank Of banks Have Mercy On Us

By Ahmed Al-Jarallah

The Central Bank of Kuwait is considered the financial adviser to the government in accordance with its established laws, but the economic events witnessed in Kuwait over the past six years lead one to conclude that the adviser needs an adviser. We say this because of the series of crises that have occurred mainly due to the decisions taken by the Central Bank.

The crash of the stock market and all the past crises confirm this point. This happened due to confusion and lack of an economic vision, in addition to the series of laws and regulations constraining the banks and the private sector, thus rendering useless — in economic terms — all the comments made by Central Bank Governor Sheikh Salem Abdulaziz Al-Sabah.

These comments are not at all assuring because any investor would rather invest his money abroad or think a thousand times before investing it in Kuwait.

Those who think they are fully aware of all the reasons that led to the stock market collapse and have a lot of options and plans to address the situation will surely find themselves in no-man’s land. This is because it is impossible to think that a healthy and excellent economy is suffering from three structural imbalances at the same time. We must think of a clear cut plan for the future generation.

What some officials do not want to confess is the cause of these crises in the country today is due to the ‘Financial Stability Law’, which is fiercely defended by the Central Bank of Kuwait.

At a time when all sectors of the economy in other countries were striving to overcome the financial crises, Kuwait was busy driving companies to near bankruptcy.

It was a perfect example of bad financial administration, because instead of encouraging banks to open credit lines to the private sector and instead of coming to the rescue of some companies, the Central Bank abandoned them to their fate.

The ‘adviser’ to the government on ‘finance’ started putting restrictions on the banking activities in the country, and the proof is the weakness of bank deposits which totaled KD 32 billion.

Is it reasonable that this meager amount is what we can point to in a country like Kuwait with all development projects and high earning power? This is also very low considering that Lebanon, a country which has a history of economic woes, has the same amount of deposits as in Kuwait.

This is the situation in Kuwait, while our finance officials tell us several stories and talk about theories and slogans to protect banks and improve their competing power.

How can these theories be accepted when banks, which are the spinal cord of investments, are put under severe pressure? The directives issued to banks cripple companies and even lead to bankruptcy due to a lack of credit and the insurmountable requirements placed before them by the Central Bank. When one company falls, it surely affects the others.

No one is arguing the Central Bank has good intentions to improve the financial situation of the country but intentions alone are not enough. It has to correct past mistakes. Everyone is prone to committing mistakes but continuing on the wrong path is suicidal.

If the Central Bank truly wants to put things in the right perspective, it must do away with all the regulations that have led to the collapse of the private sector. There is a need for a stimulation package and credits must be encouraged.

The Governor of the Central Bank must reckon that the stock is the indicator of a healthy financial practice in a country. This is because it represents a third, if not more, of the whole economy. It is also an indicator of how people react to a specific event in a country and around the world.

When the stock market collapses, it means a crisis is imminent and investment is dying a slow death. In Kuwait, the stock market is not only suffering from bad financial practices but from an absence of clear regulations to encourage investment and organize market practices in line with the nation’s economic goals.

This means we are going to continue witnessing bankruptcy in the absence of development-oriented legislation that would prevent collapse.

It is unfortunate some of the required legislation is collecting dust in the National Assembly. These will not see the day of light if people don’t stop politicizing the economy and subjecting the market to daily trials.

Over the past four years, politics has been a hindrance to economic progress. The government has failed to encourage the companies and a perfect example is the withdrawal of the (BOT) build-operate-transfer project under pressure from lawmakers.

It is imperative on the Central Bank to do away with the mentality of being in a war. The government also must be firm and determined. It must not be frightened by comments flying from the mouths of some lawmakers and Diwaniyas.

If we want Kuwait to be a financial hub, we must earn this reputation with hard work not by issuing irrelevant statements and promulgating absurd theories.

The talk of the ‘past’ is enough to make hundreds of countries financial hubs. Kuwait has regressed a lot, now it is time to be brave and act... and act fast.

-This commentary was published in The Arab Times on 22/07/2011
-Ahmed Al-Jarallah is the editor-in-chief of The Arab Times and the Kuwaiti Arab daily Assyassah