Kuwait Considers Consumer Debt Bailout for All Citizens
The parliament of Kuwait is pondering a unique response to the recession: it is considering a bailout of all its consumer debt. The $21 billion proposal would work like this. The government would buy all consumer loans from the banks: car loans, credit card loans, mortgages, the works. The interest will be written off and everyone will be given a repayment schedule to pay of the principal. The banks are paid. People won't go bankrupt over outrageous interest charges. And the government presumably will be paid back the principal amount. The plan only applies to Kuwaiti citizens, not to residents. Government officials don't like the plan, and Parliament has been shut down several times because of the issue.
Lawmakers in Kuwait, which is richer per capita than Germany, are demanding a government bailout of all consumer loans, reviving a power struggle that's already shut down the assembly twice in 18 months.
At least half of the 50 elected lawmakers say they'll back a plan for the government to buy all 6 billion dinars ($21 billion) of bank loans taken by Kuwaiti citizens to buy homes, cars, holidays and other purchases, write off interest payments and reschedule the rest. The government opposes the bailout. Parliament convenes on Oct. 27 after a four-month break.
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The row has dominated the local media during parliament's recess, signaling a fresh dispute between Kuwait's government, appointed by the emir, and elected lawmakers who are seeking broader powers and have blocked key investment programs in the past. Emir Sheikh Sabah al-Ahmad al-Jaber al-Sabah last dissolved parliament in March saying relations with the legislature were "ruined."
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Repayment problems escalated in 2006 as the central bank raised interest rates as high as 6.25 percent to curb inflation. Legislators have criticized the government and central bank for failing to regulate lending properly.
"I will not hesitate to use any constitutional tool to pass a bill for purchasing and rescheduling citizens' consumer loans," lawmaker Daifallah Bu Ramiah said in a phone interview.
Bu Ramiah said at least 100,000 Kuwaiti borrowers face legal charges after falling behind on debt repayments. The government says that's exaggerated. A total of 278,000 Kuwaitis held consumer loans at the end of last year, according to Kuwait-based Al-Shall Economic Consultants. There's no official data on defaults.
It's an unusual idea -- and one that is being watched closely by other nations. Currently, only about 1/3 of the people living in Kuwait are actually citizens. In many parts of the Middle East, defaulting on a debt can lead to serious legal consequences. In Dubai, a defaulting debtor can end up in prison.
