Kuwaitis still don't trust Iraqi regime

Kuwaitis still don't trust Iraqi regime

KUWAIT (Reuter): Kuwaiti businessmen gave mixed reviews yesterday to Iraq's formal recognition of the emirate, with some foreseeing economic gains but others saying Baghdad cannot be trusted.

"This is a very important move towards normalizing the economic atmosphere," said former oil minister Ali al-Baghli.

"Of course we don't believe (Iraqi President) Saddam Hussein. But it will be an embarrassment for him if he now revokes recognition."

An investment official said the pledge announced by Saddam and his government could not be trusted and Kuwait's main source of security had to remain the military support of its allies.

"There will be no dramatic change in investor confidence merely as a result of Iraq's statement," the official said.

"The factors behind investor confidence will continue to be government economic policy -- principally its measures to attack the budget deficit -- and profitability of the private sector."

All agreed there was no prospect of an early return of the billions of dollars in private funds that left Kuwait for safe havens abroad after the 1991 liberation from Iraqi occupation, or of other funds sent abroad in early years. That depended on deep and long-term economic and political change in the region.

They said the prospect of Iraq's return to the oil market might depress the world price of Kuwait's single resource, although few saw that happening before the end of 1995.

Reintegrating Iraq into the market was the collective responsibility of the Organization of Petroleum Exporting Countries and this would be a "difficult task", Baghli said.

Amer al-Tamimi, chairman of the Kuwait Economists' Society, said Iraqi recognition combined with the reassurance created by the rapid Western response to an Iraqi border buildup last month was "good for the economy, good for the stock market and good for the real estate market".

Turnover on the stock exchange doubled and prices crept higher on Wednesday on news that Iraq might recognize Kuwait.

Kuwait's economy was hit hard by the 1990-91 Gulf crisis which cost the treasury US$21 billion in direct war costs and cost both private and public sectors over $100 billion in repairs and outright losses due to destruction or theft of assets.

Aggressive

A boom that accompanied aggressive post-Gulf War oilfield reconstruction quickly petered out as bad debts, worries about Iraq, a population fall and low oil prices kept confidence low.

Kuwait's economy took a minor knock from Iraqi's buildup last month, a move seen largely as a way of attracting attention to Iraq's demand for a lifting of sanctions.

Business activity ground almost to a halt for several days as foreign executives called off visits and Kuwaiti executives turned attention to their families' security.

Top hotels reported only 40 percent occupancy in a period when most expect at least 60 percent. Non-cash bank transfers overseas jumped 373 percent in the first days of the episode.

The incident reminded analysts of the profound effect Iraqi hostility can still have on confidence in the emirate.

"There has been a lot of uncertainty in the face of the continuing Iraqi menace. Now (with recognition) the menace has been eased," Baghli said.

"Allied military support was essential during that period, but it was costly. Now some of the money spent on defense can go on development."