Monday, 18 December 2017 12:49 GMT

Kuwait- Nod to debt bill ... We'll reject it

(MENAFN - Arab Times) Kuwait's parliament approved on Wednesday a bailout bill worth up to 6.7 billion dinars ($23 billion) for its indebted citizens, despite the government's opposition. The vote is the latest in a series of confrontations between the assembly and the government. The bill threatens the stability of the Gulf Arab state's banking sector and includes legal violations, Kuwait's Finance Minister Mustapha al-Shamli told parliament on Wednesday, before the vote. "The government does not agree about what is included in the draft law ... it is an inapplicable law in reality, with unconstitutional doubts in some of its articles," Shamali said. The bill has to be approved by Kuwait's Cabinet and HH the Amir to take effect. On Monday, Sheikh Ahmad al-Fahad al-Sabah, deputy prime minister for economic affairs, told state news agency KUNA that the government would recommend to the ruler to reject it. The bill, passed with 35 votes in favour and 22 against, calls on the government to buy up and reschedule citizens' consumer loans, as well as write off any interest owed to lenders in return for state deposits held at local banks. "As legislators we have to abide by justice ... because we legislate for the country and not for a certain group," MP Massouma Al-Mubarak told parliament. If the bill is rejected, it would be sent back to the assembly which will have to vote on it again. It will then need 44 votes, or a two-thirds majority, for the bill to be passed before parliament breaks for summer in June. The legislation also requires the government to reschedule the repayment of the principal in interest-free installments over 10 years and forgive the interest currently owed, which is estimated at more than 5.2 billion dollars. The government immediately said it will reject the law. Finance Minister Mustafa Al-Shamali told reporters after the vote the government will not accept the law because of "technical, constitutional and procedural violations." He said the law is almost impossible to apply. Under Kuwaiti law, the government can reject legislation passed by MPs, but it must then go back to parliament, which can override the veto if it can muster a two-thirds majority in a new vote. Kuwait central bank has said that the number of Kuwaitis who have taken personal or consumer loans until the end of last year topped 300,000 of the native population of 1.1 million. Shamali said on Dec 23 the debt relief scheme breached the constitution and could cost up to $13 billion in public funds, in addition to encouraging citizens to spend lavishly. The minister said the government is currently helping citizen debtors who are unable to repay through a $1.75 billion defaulters fund set up a year ago. MPs backing the plan however blamed the government for causing a debt problem by failing to apply strict monitoring on local banks, which they said lured citizens into taking out loans beyond their ability to repay. They said that more than 40,000 citizens are facing legal action over debt arrears. The legislation requires the government to use returns on some 30 billion dollars of state deposits at local banks to cover the cost of the scheme. However, supporters of the bill blamed the government for causing a debt problem due to its inability to apply strict monitoring on local banks which, they said, encouraged citizens to obtain loans beyond their capacity to pay. They alleged over 40,000 citizens are facing legal action for failure to settle their debts. "Despite the main goal of the proponents of the bill to provide facility to citizens who borrowed from the banks and financial companies through writing off interest of consumer and rescheduling payment, the bill which was presented came with a different purpose," Al-Shamali asserted. The minister added the bill led to mistrust in the banking, financial and legal systems, lack of respect for contracts and agreements, and negative behaviors among customers of banks and financial institutions. He believes the bill will further lead to instability of financial transactions in the country." Al-Shamali noted that it is difficult to assess the cost of the enforcement of the law before studying the financial positions of the possible beneficiaries among the estimated 317,000 (debtor) clients. "The balance of consumer loans and lending for consumer transactions by Kuwaiti citizens hit KD 4,891 million, excluding the value of aggregated interest rates," the minister said, citing the data tabled to the CBK by traditional and Islamic banks by the end of September, 2009. "The total balance of such funds amounts to KD 6,709 million, which means that interest rates amounting to KD 1,818 million should be dropped under the legislation at hand," he explained. "The second article of the law failed to provide a clear position on the deposits of government institutions at banks; it did not specify that such deposits are interest-free loans as it did with similar loans to be rescheduled. The major part of such deposits belongs to the Kuwait Investment Authority (KIA), Kuwait Petroleum Corporation (KPC), Kuwait Awqaf Public Foundation (KAPF) the Public Institution for Social Security (PISS), the Public Authority for Minors Affairs (PAMA). "The rescheduling of the consumer debts, as envisaged by the law, could lead to freezing huge assets deposited at the banks by government and semi-government institutions for up to 15 years," Al-Shimali revealed. "The third article of the law allows the Islamic Sharia-abiding banks to reschedule the net value of their non-usurious debts to citizens and cede part of their benefits resulting from the lending activities on equal footing with traditional banks. "This provision casts doubts on the legitimacy of the intra-bank transactions," he said, noting that the second article failed to tackle the loans offered by investment firms which do not accept deposits. "Taking into account that 489,000 loans are slated for rescheduling according to the data tabled to the CBK by the creditor traditional and Islamic banks by September 30, 2009, the CBK has presumably to verify at least 20 percent or 98,000 such loans in the coming 15 years. "This process will not be done once for all as the CBK is asked to follow up the abidance of the creditors by the relevant regulations, which is unviable in the technical and procedural points of view," he noted. Meanwhile, State Minister for Cabinet Affairs Roudhan Al-Roudhan confirmed "we will discuss the bill in the next Cabinet meeting and study all the available options but we will most likely forward a recommendation to HH the Amir Sheikh Sabah Al-Ahmad Al-Sabah to reject the bill." MP Ali Al-Rashid explained the bill did not get 44 votes, so the government has right to reject it. MP Musallam Barrak pointed out if the government works in accordance with the Constitution, then it should not submit a recommendation to the Amir to reject it. MP Aseel Awadhi clarified the main reason why she voted against the bill is that the citizens, who actually need it, have to wait for more than a year for the Parliament to address their problem, adding the bill violates the Constitution which calls for equality. She believes the government will return the bill to the Parliament. MP Saleh Al-Mullah stressed he is not against the proposal but he has reservations on the report presented by the Financial Affairs Committee, since Article 9 violates the banking system which has been in existence for more than 70 years.

Kuwait- Nod to debt bill ... We'll reject it

  Most popular stories  

Day | Week | Month