US embassy cable - 05KUWAIT4672

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 004672 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR NEA/ARPI SWALKER, S/I FOR JJEFFREY, EB FOR 
JSALOOM, LONDON FOR LTSOU, ISLAMABAD FOR TWILDER, 
DEPARTMENT PLEASE PASS TO USTR FOR PBURKEAD, TREASURY FOR 
U/S LEVEY AND RWERNER 
 
E.O. 12958: DECL: 10/06/2015 
TAGS: ECON, EAID, EFIN, KTFN, PGOV, PREL, IZ, KU 
SUBJECT: FINANCE MINISTER ON IRAQI DEBT, ECONOMIC REFORM, 
TAXATION, TERROR FINANCE AND EARTHQUAKE ASSISTANCE 
 
REF: A. KUWAIT 4338 
     B. KUWAIT 4483 
     C. KUWAIT 4552 
 
Classified By: Ambassador Richard LeBaron.  Reasons 1.4 (b) and (d) 
 
1. (C) Summary.  In a November 1 meeting with the Ambassador, 
Finance Minister Al-Humaidhi explained that there had been no 
renewed contact with the Iraqi government on debt relief 
since Ambassador Jeffrey's visit in October and that 
reconstruction assistance was proceeding slowly.  He 
expressed cautious optimism about Kuwait's bullish stock 
market and underscored the importance of an independent SEC 
for Kuwait to enhance market oversight.  Al-Humaidhi 
identified pending reforms on public private partnerships, 
taxation and privatization as top ministerial priorities for 
this legislative session.  He pointed to a pending GOK 
decision to reduce the corporate tax rate from 55 to 15 
percent as a precursor to more comprehensive reforms.  He 
disagreed with the practical applicability of a cash exit 
declaration policy in Kuwait and said that the GOK's $100M 
earthquake relief package was "only the start."  End Summary 
 
2. (C) On November 1, Ambassador met with Kuwaiti Finance 
Minister Bader Al-Humaidhi to follow-up on GOK debt relief 
and assistance to Iraq, solicit the Minister's views on the 
booming stock market, request an update on pending economic 
reforms, urge GOK action on tax reform, press for continued 
GOK support and visibility for terror finance and 
money-laundering initiatives, and urge sustained GOK 
assistance to earthquake relief efforts in Pakistan. 
 
Iraq Assistance and Debt Relief 
------------------------------- 
 
3. (C) In follow-up to Ambassador's Jeffrey's discussions 
with Al-Humaidhi on October 5 (see ref A), Ambassador asked 
Al-Humaidhi whether there had been any renewed contact 
between the GOK and the Iraqi Transitional Government (ITG) 
on debt relief for Iraq within the context of the GOK's 
commitment to a negotiated settlement.  Ambassador added that 
the USG was cognizant of Kuwaiti domestic sensitivities 
impacting the approach to Iraq debt forgiveness, referring to 
the recent clamor in the National Assembly for forgiveness of 
Kuwaitis' private debt.  Al-Humaidhi, echoing his comments 
from the Jeffrey visit, said that there had been no new 
discussions with the ITG since the World Bank/IMF meetings in 
Washington.  Al-Humaidhi repeated his complaint that "the 
Iraqis always promise to contact but never do," suggesting 
that "the Iraqis are busy with other things right now." 
 
4. (C) Ambassador applauded the GOK's swift public rejection 
of parliamentary calls to write off Kuwaiti citizens' private 
debt as a quid pro quo for Iraqi debt relief or GOK disaster 
assistance to the United States and Pakistan (see ref B). 
Al-Humaidhi noted that writing off public Kuwaiti debt was 
"widely welcomed by the people," but that he had made 
political enemies in the parliament by rejecting the proposal 
as economically unfeasible.  He commented that such proposals 
take for granted the country's current economic boom.  With 
oil prices in constant flux, Al-Humaidhi cautioned that there 
was "no guarantee of future prosperity" and that it was more 
prudent to save for future generations. 
 
5. (C) On reconstruction assistance to Iraq, the Ambassador 
pointed to the issuance of tenders for school construction by 
the Kuwait Fund as a sign of progress, but noted that similar 
progress on health sector projects was lacking.  Al-Humaidhi 
blamed the delays on the lack of Iraqi responsiveness. 
(Note: KFAED recently issued tenders on a $30M grant to build 
schools in Iraq as part of an overall $60M grant for Iraq's 
health and education sector.  KFAED officials justify 
disbursal delays on security challenges, lack of ITG 
responsiveness, and GOK's interest in finalizing disbursal 
agreements with a permanent Iraqi government.) 
 
6.  (C) Ambassador informed Al-Humaidhi of USG plans to 
replicate the Provincial Reconstruction Team (PRT) concept 
from Afghanistan in Iraq.  Ambassador suggested that the PRTs 
could potentially facilitate the disbursal of GOK assistance 
to the provinces, thereby overcoming some logistical 
challenges confronting the GOK.  Al-Humaidhi welcomed the 
idea and urged follow-up on the PRT concept with KFAED 
 
KUWAIT 00004672  002 OF 003 
 
 
officials.  (Note: Embassy would welcome additional details 
on the PRT concept to be shared with KFAED.) 
 
Economic Prosperity and Reforms 
------------------------------- 
 
7.  (C) Ambassador requested Al-Humaidhi's assessment of the 
booming Kuwaiti stock market and the overall health of the 
economy, including prospects for economic reform and expected 
legislation during this parliamentary session.  Al-Humaidhi 
expressed cautious optimism about the market's excess 
liquidity and continued surge, prompted in part by increased 
GCC investment in Kuwait.  He added that while he was 
"personally not 100 percent at ease" with the market's 
current pace, improved GOK market regulatory controls and 
oversight made the possibility of a major crash, similar to 
Kuwait's 1982 crash, less likely.  Al-Humaidhi also called 
for greater outreach by the GOK to ensure public awareness of 
inevitable market fluctuations.  He concurred with the 
Ambassador's call for a Kuwaiti "Securities and Exchange 
Commission," stressing the importance of having an 
independent body to further strengthen regulatory oversight 
and to increase the enforcement of rules and regulations (see 
ref C regarding plans for a Capital Markets Authority). 
(Note:  The earlier, informal Kuwaiti stock market suffered a 
major crash in 1982, prompting the formation of the Kuwaiti 
Stock Exchange and enactment of more stringent regulations.) 
 
8.  (C) Al-Humaidhi identified three economic legislation 
priorities for the Ministry.  He said his top priority was 
the structural overhaul of the current Build Operate Transfer 
(BOT) and Private Public Partnership (PPP) initiatives.  He 
noted that the BOT/PPP reform measures would be presented to 
the National Assembly shortly and that he would "push hard" 
to ensure its success.  This legislation would be the legal 
framework for subsequent specific BOT projects.  His second 
and third priorities include reform of privatization and 
taxation laws, respectively.  (Note: Al-Humaidhi explained 
that the GOK's first overall legislative priority would 
remain the Northern oilfields project.) 
 
Corporate Taxation 
------------------ 
 
9.  (C) Ambassador reiterated USG concerns with Kuwait's 
"unfair, inconsistent, and non-transparent" tax system and 
the negative impact the country's tax laws were having on 
U.S. companies and foreign investment more broadly.  He 
called for GOK cooperation to help resolve the retroactive 
taxation that is affecting U.S. companies with business 
interests in Kuwait.  Replying that the GOK "will try" to 
address concerns, Al-Humaidhi pointed out that the GOK was 
pursuing two measures to address immediate and long-term 
concerns.  He explained that the GOK would plan to reduce the 
current foreign corporate tax rate from 55 to 15 percent in 
order to provide immediate tax relief to foreign companies. 
Al-Humaidhi explained that the GOK's draft "comprehensive tax 
reform package," expected to be submitted to NA next year, 
would address long-term concerns by thoroughly overhauling 
the country's outdated tax regime.  (Note: It remained 
unclear to us whether this approach would alleviate current 
problems faced by some U.S. companies.) 
 
Terror Finance 
-------------- 
 
10. (C) On terror finance issues, Ambassador informed 
Al-Humaidhi about the planned November 30 visit by Treasury 
Undersecretary Levey to discuss CTF/AML issues and the 
ongoing efforts of U.S. Customs advisors employed by Kuwait 
Customs to strengthen the GOK's AML efforts.  Ambassador 
underscored the importance of continued GOK support for the 
advisors' efforts and encouraged Al-Humaidhi to participate 
in the Customs' December conference to raise visibility on 
the issue.  Al-Humaidhi indicated having met the Customs 
advisors and welcomed the opportunity to participate in the 
December conference. 
 
11. (C) Ambassador pointed to the lack of progress on 
implementing a cash exit declaration policy in Kuwait to 
better track the outflow of large sums of money from the 
country.  (Note: Kuwait currently only has a cash entry 
declaration policy set at 3000KD or $10,000).  Al-Humaidhi 
 
KUWAIT 00004672  003 OF 003 
 
 
disagreed with the practical applicability of such a policy, 
suggesting that Kuwait's open market economy made it 
difficult, if not impossible, to impose such measures here 
and elsewhere, including the United States.  He added that 
the issue of cash transfers by NGOs and other entities was 
also raised by Ambassador Jeffrey during his visit and that 
the GOK was still waiting to receive from the USG information 
on suspected Kuwaiti NGOs.  Ambassador offered to follow-up 
and noted that some of this type information exchange may 
occur through intelligence channels. 
 
Earthquake Assistance 
--------------------- 
 
12. (SBU) Ambassador praised the GOK's $100M assistance offer 
for earthquake relief efforts in Pakistan and urged increased 
GOK assistance to meet the urgent needs that are complicated 
by the logistical and environmental challenges affecting the 
devastated areas.  Without offering specifics, Al-Humaidhi 
said that the initial $100M package was "only the start" of 
the GOK's relief efforts. 
 
 
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