Kuwait’s Central Bank governor unveiled a US$5.15 billion economic stimulus package on Sunday aimed at helping struggling investment companies and offering bank loan guarantees.
Sheik Salem Abdul-Aziz Al Sabah said the plan presented the best solution possible at the lowest cost to the public to help struggling companies weather the global economic downturn. He said it would also help protect banks that he described as “the beating heart” of the economy.
The oil-rich state has been grappling with the fallout from the economic downturn. The stock exchange lost 30 percent last year, a major commercial bank is grappling with difficulties and the country’s largest investment company has defaulted on its debts and cut 10 percent of its work force.
Before Sheik Salem spoke to reporters, little detail had been officially released about the package, that the Cabinet approved on Thursday. It still needs the approval of Kuwait’s parliament, whose members have been pressing for a bailout package.
Sheik Salem said he does not like to use the term “rescue” to describe the package, which he sees as a bill to “enhance financial stability.”
He said the state would help banks deal with loan losses and increase their capital according to stringent conditions, including cutting expenses and agreeing to possible mergers.
In addition, the plan guarantees 50 percent of future bank loans to companies that are going to invest the money locally.
“We expect [the bill] to generate a good measure of confidence in Kuwait,” Sheik Salem said, adding that the package would “reduce the risk of an economic recession.”
The state would not help troubled companies that are not solvent, he said.
Investors are worried about firms going bankrupt and fears are compounded by a decline in oil revenues and an estimated 35 percent loss on the nation’s sovereign fund.