Kuwait Court Ruling May Threaten Economic Recovery

A ruling by Kuwait’s top court next month could end a period of relative political stability, jeopardising government plans to push ahead with long-delayed economic projects.

One of the world’s richest countries per capita, Kuwait has struggled for years to get big infrastructure projects off the ground because of bureaucratic red tape and political turmoil. A parliamentary election in December was the fifth in six years.

The election seemed to be a turning point, however, since an opposition boycott of the poll meant members of parliament seen as more willing to cooperate with the government were elected.

This stirred investor hopes that the state would ramp up spending under a 30 billion dinar ($105 billion) development plan, which aims to draw private and foreign investment and diversify the oil-reliant economy.

That optimism, which has helped to fuel a more than 30 per cent rise in the stock market since the start of this year, could come to an end on June 16.

The constitutional court is expected to rule on an emergency decree issued by Kuwait’s ruler last year, six weeks before the December poll, which changed the rules for voting and triggered some of the largest street protests in the country’s history.

If the court rules that the decree was not constitutional, parliament will need to be dissolved, triggering a snap election, and legislation passed by the assembly may also be made invalid – sending Kuwait back to square one in economic policy terms, or close to it.

“An annulment of the current parliament and the return of major political uncertainty would be negative for investor perceptions and the economy,” said Farouk Soussa, Middle East chief economist at Citigroup in Dubai.

If the court rules in favour of Emir Sheikh Sabah al-Ahmad al-Sabah’s decree, which changed the number of votes per citizen to one from four, the current parliament will be able to continue; this would make progress on investment more likely.

INDEPENDENT COURT

The court is widely seen as independent in Kuwait, which has the most democratic political system in the Gulf Arab region. Analysts and diplomats think the ruling could go either way.

“All Kuwaitis, we pride ourselves – even the opposition, even the government detractors – that our judiciary system is one of the best and the most independent in the Arab world,” said Abdullah al-Shayji, chairman of the political science department at Kuwait University.

In the past, constitutional court judges have issued some rulings in line with the government’s wishes, but they have also passed verdicts with the opposite effect.

Last June, for example, the court effectively dissolved a parliament dominated by the opposition, citing a technicality. But in September, it rejected a government request to change electoral boundaries, saying it did not have the authority to rule on the matter; it was this ruling that ultimately prompted the emir to issue his emergency decree.

In their upcoming ruling, the judges will assess whether the decree can be described as a “decree of necessity” and if it was issued in the correct way. The constitution lets the emir pass urgent decrees when parliament is not in session or dissolved.

The emir said at the time that the voting rule changes aimed to ensure security and stability in Kuwait, following months of political stalemate between the cabinet and parliament.

Opposition politicians, who boycotted the December election in protest at the decree, said changes to the voting system should be agreed by parliament. Protesters alleged the new rules aimed to weaken the opposition, which was able to form effective parliamentary alliances under the old four-vote system in a country where political parties are banned.

MODEST PROGRESS

The opposition boycott of the election meant that liberals, Shi’ites, neutral MPs and complete newcomers to parliamentary politics were elected to the assembly, initially working well with the cabinet.

They have passed some laws seen as helping the economy, such as a law aimed at simplifying the issuance of company licences and plans for a fund to aid small and medium-sized firms.

“The authorities now seem more determined to put a shoulder to the wheel to get the economy going, including on the projects,” said Daniel Kaye, head of macroeconomic research at National Bank of Kuwait.

Under the new parliament, partly because of a more stable political environment, two major projects have inched towards implementation.

The government signed a contract with South Korea’s Hyundai Engineering and Construction Co last November to design and build a $2.6 billion causeway connecting the north and south of the country. In January, it signed a deal with a consortium led by France’s GDF-Suez, and including Sumitomo Corp of Japan, to build the Az Zour gas-fired power and seawater treatment plant.

From the cabinet’s point of view, the current parliament is by no means perfect; there are signs of some of the old tensions. This week MPs submitted requests to interrogate the oil minister and interior minister over their performance, which could lead to a vote of no confidence in them.

Members of the cabinet then offered to resign and the government kept away from two parliament sessions, causing them to be cancelled.

The possibility that the court ruling could lead to a fresh election means that some MPs may want to be seen as holding the government to account, Kuwait University’s Shayji said.

“There are now some problems between the parliament and the government, because of dissatisfaction with some of the ministers and a lack of cooperation on the part of some ministers,” said Saleh Ashour, a long-serving MP.

“Everyone is waiting for the constitutional court ruling.”

Nor is the current parliament’s economic policy-making completely in line with the cabinet’s wishes. In April the assembly passed a consumer debt relief law allowing the state to spend up to 744 million dinars to buy loans taken out from banks before March 2008, write off the interest and reschedule repayments.

Economists described the law as a populist measure forced on the government by MPs. While the state can afford the measure, with its 14 straight years of budget surpluses, bankers argued that the plan encouraged bad behaviour by consumers and could cost local banks money.

But measures to reform the economy and get development projects on track still appear more likely under the current parliament than under a new one which would include opposition MPs emboldened by a court ruling against the emir’s decree.

“We would like to see further, deeper economic reforms that help support the private sector and make the economy more dynamic,” NBK’s Kaye said, citing privatisation, labour market reforms, housing policy and business regulation as key areas.