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Kuwait: when old certainties are swept away.

Since the Iraqi invasion in 1990 there have been enormous changes in Kuwaiti society. Following its liberation, the country has made huge strides in the reconstruction of its infrastructure. At the same time, social, economic and political changes have also undeniably altered the make-up of the country. The big question is where these changes will lead.

FREQUENT VISITORS to Kuwait are apt to comment that little has changed in the Emirate as a result of the Iraqi invasion. In the mouths of Kuwait's detractors, the remark is often just snide and ill-informed criticism of the perceived flaws in Kuwaiti society: over-confidence, unwillingness to take on non-managerial jobs and an unresponsive bureaucracy. Coming from Kuwait's friends, the remark refers to the rapid re-building of Kuwait's infrastructure and is often accompanied by the comment that it is "business as usual" in Kuwait.

Both groups of commentators are seeing only a small part of the picture. The fall in Kuwait's population, the re-establishment of the National Assembly, the spending of most of the country's overseas reserves on war-related costs, the revelation of serious corruption in the management of its overseas assets and the exposure of Kuwait's total reliance on Western powers for its own security represent enormous changes in Kuwaiti society,

The question, therefore, is not whether Kuwait has changed, but where the changes seen so far will lead. Will Kuwait's ruling Al Sabah family become the first to lose power in the Gulf for more than 90 years or will the ambitions of some National Assembly members lead to a backlash and the imposition of more authoritarian rule? Or can the ruling family and its opponents find a modus vivendi and rebuild Kuwait as a smaller, more cautious version of its pre-invasion self? The outcome will have a profound effect on the rest of the Gulf, acting either as a spur to change or reaffirmation of the old order.

Recognition of the changes brought about by the invasion does not entail a corresponding denigration of the rapid and successful reconstruction of Kuwait's infrastructure after the liberation. Kuwait's achievements during the last two years have been huge and undeniable.

Despite systematic destruction of the oil fields and facilities, Kuwait was capable of pumping two million barrels a day on a sustainable basis by the end of February this year. (Pre-invasion capacity was put at 2.5m b/d.) Long term crude supply contracts have been re-established with Kuwait's traditional clients. A year after the liberation, two of Kuwait's three refineries were producing at about half their pre-invasion capacity.

Power and water services have been restored and many of the shopping centres and hotels vandalised during the occupation have been partly or almost wholly repaired (although the fall in population has left many shops unoccupied). The banks resumed near-normal customer services within weeks of the liberation.

It is a measure of Kuwait's success in restoring what was damaged that discussions among Kuwait's officials and consultants now focus on expanding and developing the pre-invasion infrastructure facilities and not simply restoration of the status quo ante.

Nevertheless, infrastructure is only one element in the make-up of any country, and an analysis of the rebuilding in Kuwait provides only one view of the complex way in which the country has moved on since its liberation.

Indeed it is ironic that whereas during the 1970s, the construction of huge factories, utilities and office buildings allowed all the Gulf states to claim that their societies were being transformed, when in fact the changing and political continuity which was the most astonishing feature of the oil boom years, now, the reconstruction of Kuwait's infrastructure is being used as a screen to cover the undeniable social, economic and political changes which the invasion has brought about.

The most basic change has been in the size of the population which now totals 1.45m, compared to 2.2m before the invasion. The fall is most evident in the retail sector, where many shops have remained empty since their owners, usually from the subcontinent, left. Fewer people has meant less demand for consumer goods and a weakening of the import market.

But the fall in population is more subtle than just a reduction in numbers. Many of those who left were Palestinians who had lived in Kuwait for decades, in some cases all their lives. For these people, Kuwait was their home. They earned reasonable salaries and spent them in Kuwait, buying cars and furniture and renting good apartments. Now they are gone, the economy has lost their money and their replacements, where they exist, tend to be Egyptians and Syrians on short contracts who are concerned to save as much money as they can during their time in Kuwait. Rather than spend money, they remit it home.

Spending power aside, without the qualified clerical staff who lived in Kuwait before the invasion, the country will not be able to regenerate the level of economic activity which it once enjoyed. Even in Kuwait, oil production is only one part of economic activity. In the late 1980s, gross domestic product from non-oil sources accounted for 60-70% of the total.

There are no signs, yet, that Kuwaitis are ready to fill the gap left by those workers who have departed, leaving the government with the choice of either accepting the present smaller economy, or reversing its policy of restricting the number of expatriates to about half of the total number of people in Kuwait.

The other major economic change in Kuwait -- and one which will be much more difficult to reverse -- is the massive drawdown of foreign reserves. These were believed to total around $100bn before the war. About $25bn was, and is, illiquid, consisting largely of non-collectable loans to other countries and unsellable investments in Gulf and local companies. Of the rest, maybe $20m-$25m remains after contributions to the Gulf war allies, accumulated budget deficits and other expenses have been taken into account.

The reserves will be further depleted if plans proceed to spend $1bn a year for the next 12 years on off-budget military expenditure. The difficult debt settlement scheme, implemented in 1992 to help the banks, is also costing nearly a billion dollars a year at the moment.

The result is that Kuwait cannot rely on investment income to cover budget deficits as it did during the 1980s. It must think much more carefully about spending priorities, including the free or highly subsidised welfare services which have been a prominent feature of Kuwaiti society during its recent history.

More traumatic than the depletion of the country's assets on Gulf war expenses has been the revelation of serious mismanagement of overseas investments by the Kuwait Investments Office (KIO). Once credited with a Midas touch, the KIO is now believed to have lost billions of dollars through lax controls, and, some are alleging, outright misappropriation.

Opposition figures in Kuwait have for years been calling for greater accountability in the management of the country's overseas investments, which accounted for a large proportion of Kuwait's present wealth. Their cries sounded hollow at the time when KIO was riding high in international markets, and, undoubtedly, making plenty of money. But the collapse of KIO's Spanish investment empire has given credibility to opposition claims that the ruling family cannot be given a free hand to do as it pleases. The claims were strengthened by revelations that senior officers in the state-owned Kuwait Oil Tankers Company had been making illicit money for themselves, at the expense of the company.

The role played by the ruling family and its appointees is being questioned as people try to understand the Iraqi invasion and Kuwait's response to it. Many people feel, rightly or wrongly, that Kuwait's rulers failed to take the threat from Iraq seriously in the weeks before the invasion and that the country should have been better prepared for the Iraqi onslaught when it came.

Furthermore, regardless of the performance of the Kuwaiti armed forces in August 1990, the invasion exposed the inability of Kuwait to defend itself in the face of a concerted attack from one of its bigger neighbours -- be it Iraq or Iran. The Gulf Co-operation Council has shown no signs of being able to act as an effective military force. Plans to bring Egyptian and Syrian troops into Kuwait on a long term basis have been quietly dropped in favour of military agreements between Kuwait and Western powers. Kuwait's reliance on the West for its continued security -- once implicit -- is now plain for every Kuwaiti to see.

In the political field, Kuwait has been transformed by the re-establishment of the National Assembly based on the 1962 constitution. Debates in the Assembly are lively and reported fully in the local press (which is now free of government censorship). Ministers routinely attend the Parliament (they are ex-officio members of it) and are subject to questioning.

The Assembly intends to involve itself in all the major social and economic issues facing Kuwait. It has already passed a law aimed at preventing a recurrence of the investment debacle in Spain, it is considering ways of solving the problem of individual indebtedness arising from the invasion and it intends to pronounce on the population question and the oil industry. All these are areas where the ruling family previously enjoyed almost a free hand.

The cabinet appointed after the October elections contains six elected members of the Assembly, although the most politically sensitive cabinet posts have stayed in the hands of the ruling family. Some members of the Assembly state openly that they want to see the position of Prime Minister separated from that of the Crown Prince -- paving the way for a constitutional monarchy along European lines.

In the foreseeable future, the ruling family will not concede the prime ministership, so if the Assembly pushes the point, a showdown will be unavoidable. Such a stark confrontation may not happen within the next few years. There are powerful forces in Kuwait which are determined to see extreme (by Kuwaiti standards) positions being taken by either side.

Nevertheless, the longer the Assembly is able to work competently and efficiently (as it is widely credited with doing at the moment) the greater will be the legitimacy of elected and accountable political bodies, at the expense of traditional political structures.

Set against these profound changes in Kuwaiti society is the weight of decades of continuity, not only in Kuwait, but the Gulf as a whole. Political and social continuity has been the most striking feature in the Gulf during its recent history. In the 1950s the region survived the storms of Arab nationalism and in the 1970s it coped with an unparalleled infusion of wealth without changing the fundamental political relationship within society. (Some would argue that the role of the ruling families was strengthened at that time because their control over the oil industry -- the main source of wealth -- gave them immense powers of patronage.)

From time to time, rulers have been changed when they proved unresponsive to new circumstances, but the political system has remained intact.

In the 1970s and early 1980s issues of accountability, participation and division of resources hardly arose, because there was more money than anyone could cope with (much of it was ultimately channelled into Latin America). Money also bred confidence: many believed that the GCC could play an effective role in regional affairs, and, of course, in the 1980s, the Gulf states could rely on Iraq for help against their main security threat, Iran. All of this has been called into question during the last few years.

Even so, radical change throughout the Gulf remains highly unlikely. Consultative councils in Saudi Arabia, Bahrain and Oman do not have the ambition, maturity or the legislative powers of the Assembly in Kuwait. Nor do the citizens of other countries have so many reasons to question the existing order as do the Kuwaitis.

The conditions for change certainly exist in Kuwait. There is an articulate and powerful opposition which demands it; the pre-war government is believed by many to have mismanaged important aspects of policy; the ability of the present government to spend its way out of trouble is limited; and the 1990s are a time when it is more difficult than ever to justify any political system which falls short of the standards of Western-style democracy.

In Kuwait, the old certainties have been swept away. The question is whether traditional caution will lead the old system to be rebuilt, or whether a new paradigm will emerge for the new century.
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Title Annotation:Business & Finance
Publication:The Middle East
Date:Apr 1, 1993
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