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Persian Gulf States - Kuwait Reconstruction After the Persian Gulf War
Despite the devastation of the Kuwaiti economy during the invasion and occupation, recovery has proceeded with surprising speed. This was partly because some damage, particularly of the infrastructure, was not as serious as first feared and partly because the government, anxious to restore the population's weakened confidence in its ability to administer, has given reconstruction and recovery of basic services a high priority.
The oil industry, which was badly damaged, has been a top priority because it is the source of revenues to sustain other government spending programs. The most dramatic economic reconstruction effort went toward capping the more than 700 oil wells set afire by retreating Iraqi forces. In addition to an estimated 2 percent of the country's 100 billion barrels of reserves lost in the oil fires, Kuwait had to pay for putting out fires and repairing damaged refineries, pipelines, and other oil infrastructure. By January 1992, oil output had risen to 550,000 bpd. By June 1992, it was back to nearly 1 million bpd. Nineteen new wells were drilled to replace those damaged by the occupation.
The government hoped to raise production to 2 million bpd by the end of 1993. During the invasion, Iraq destroyed or incapacitated Kuwait's entire 700,000 bpd refining capacity at its three refineries. But by April 1992, production levels rose to 300,000 bpd. Nonetheless, there was concern that the rapid return to production might have damaged Kuwait's oil reservoirs beyond the damage done by retreating Iraqi forces, lowering its total future reserves. Accordingly, KOC contracted with several international companies to assess reservoir damage. However, the government also has been under tremendous pressure to increase oil production quickly to pay for war and postwar expenses. In the mid-1980s, overseas investments outstripped oil as the primary source of revenues. The expenses of war, postwar reconstruction, and investment irregularities that were being uncovered in late 1992 have forced the government to use substantial portions of its investment principal, and in the 1990s oil is again expected to be the major revenue source.
Restoring oil operations was expensive. In January 1992, the minister of oil announced Kuwait had already spent US$1.5 billion for putting out fires and planned to spend another US$8 to US$10 billion to repair further damage. A National Bank of Kuwait report in mid-1992 estimated that reconstruction expenses in the oil sector for the 1992-95 period would reach US$6.5 billion.
The rest of the economy also suffered, although the effects were not as severe as the oil-well fires. The banking sector, suffering the shock waves of the Suq al Manakh stock market crash in 1982, recovered slowly from the combined effects of that crash and the invasion. The agenda of the returned government included bank reform. In December 1991, the government announced a comprehensive settlement plan for bad debts, the outstanding issue of the Suq al Manakh crash. The plan involved government purchase of the entire domestic loan portfolio of the country's local banking system. The government agreed to buy US$20 billion of domestic debt from eleven commercial banks and investment companies in exchange for bonds. This plan removed the concerns of Kuwaitis, who would be obliged to repay debts, if at all, on more modest terms, and of banks, concerned about nonperforming loans. Although Shaykh Salim al Abd al Aziz Al Sabah, governor of the Central Bank of Kuwait, said the plan is needed to prevent the collapse of banks, it clearly also is intended as part of a series of government payments to Kuwaiti nationals and businesses aimed at restoring confidence in the government prior to the October election. The plan, announced but as yet incomplete, left the entire banking system in a state of limbo in late 1992.
Banks have suffered less from the physical damage of the war and more from the sudden reduction in the number of employees, many of whom in the prewar period were foreigners. Some banks reported postwar staff levels at half that before the invasion. Although there has been speculation that postwar reform will include mergers involving state-controlled banks (notably the Kuwait Investment Company, the Kuwait International Investment Company, and the Kuwait Foreign Trading, Contracting, and Investment Company, known together as the three Ks) and privatesector banks, no formal action had been taken as of late 1992. The bank that survived the invasion in the best shape was the largest commercial bank, the National Bank of Kuwait. It handled the exiled government's finances during the crisis.
According to a National Bank of Kuwait report issued in mid-1992, several additional factors hurt the private sector's recovery. The first was the government's decision to restrict the number of nonnationals, which hampered efforts to import skilled and unskilled labor and left Kuwait with a smaller market. The second was the lower level of government investment in industry as a result of reduced government income and the government decision to invest more in defense and focus in the short run on restoring basic services. The non-oil manufacturing sector, although small, was hurt by the looting and damage done by Iraqi troops. The government has been in no position to subsidize industries at the level it had in the past. Infrastructure projects incomplete before the invasion have not been resumed or have been delayed.
The only sector of the economy to prosper in the immediate postwar period is trade because of the need to replace inventory emptied during the occupation. Returning Kuwaitis and the government have created a small boom for investors. By mid-1992, however, the return demand largely had been met, and many goods, notably automobiles and consumer durables, were available in excess supply. In an effort to boost the private sector, the government approved an offset program in July 1992 requiring foreign companies to reinvest part of their government-awarded contracts locally. Companies with contracts valued at more than US$17 million have been obliged to reinvest 30 percent of the contract sum.
Despite some speculation that the government would turn more functions over to the private sector following its return, widespread privatization has not occurred. In February 1992, the government announced plans to start privatizing the public telecommunications network, a move that was expected to generate US$1 billion for the government. In May the government announced it would privatize seventy-seven local gas stations. There have been, however, no indications of more substantial denationalizations.
Reconstruction costs, which some foreign observers initially put as high as US$100 billion, appear to be more modest, perhaps in the range of US$20 to US$25 billion. The largest postwar expense the government faces is not reconstruction, but the debt it incurred to coalition allies to help pay for Operation Desert Storm, an amount that came to at least US$20 billion, and continuing high defense expenditures. Reconstruction costs have been met largely from Kuwait's reduced investments (the Financial Times estimated in February 1992 that Kuwait had lost as much as US$30 billion of its prewar investment portfolio); from returning oil revenues, which for fiscal year 1992 were only expected to generate US$2.4 billion; and from borrowing on international money markets. In October 1991, the government announced plans to borrow US$5 billion for the first phase of a five-year loan program. The loan would be the largest in history. In mid-1992 one study indicated that as much as 30 percent of 1993 revenue will be needed to pay interest on various government debts, which were expected to exceed US$37 billion by the end of 1992.
Despite the apparently dire economic situation, the government has felt politically obliged to sustain insofar as possible the prewar standard of living. Some of the largest domestic postwar government expenditures have gone directly to Kuwaiti households. The banking debt buyout was but one of a series of measures taken by the government to help nationals hurt by the invasion. The government decided to pay all government employees (the majority of working nationals) their wages for the period of the occupation. In March 1992, the government raised state salaries. The government also agreed to write off about US$1.2 billion in consumer loans, a measure benefiting more than 120,000 Kuwaitis. It wrote off US$3.4 billion worth of property and housing loans made before the invasion. Each Kuwaiti family that stayed in Kuwait through the occupation received US$1,750. In July 1992, the government exempted Kuwaitis from charges for public services due as a result of the occupation, such as bills for electricity, utilities, and telephone service and for rents on housing.
The invasion also changed the dynamics of Kuwaiti politics. The crisis of invasion, occupation, and exile further solidified the Kuwaiti opposition, which had begun emerging in the Constitutional Movement before the invasion. During the invasion, much of the opposition and the government regrouped in exile in Saudi Arabia. There, opposition leaders reiterated their preinvasion concerns and called on the amir to promise a return to a more democratic system in restored Kuwait.
The showdown came in October 1990 when the ruler met with 1,200 opposition leaders in Saudi Arabia and publicly promised liberalization following liberation. The elite opposition, however, finally unified just as it was losing its popular base to the resistance groups inside Kuwait. Kuwaitis who spent months fighting the occupation had little need for those who spent the war in relatively comfortable exile. To them, opposition leaders in exile became figures as distant as the amir. These divisions surfaced as goods waited in warehouses while resistance leaders argued with returned administrators over the right to feed the population. The opposition, so briefly united, redivided. Several identifiable factions emerged. These included the Democratic Forum, representing the liberal progressives. In defiance of the law, the Democratic Forum declared itself a political party in 1991. The Sunni Islamist opposition broke into the historically Muslim Brotherhood-oriented Islamic Constitutional Movement and the Islamic Alliance. The National Islamic Coalition represented Shia.
Had the amir returned quickly to Kuwait, stood above the factions, and appealed to the natural desire of a population tired by war to retreat from politics to the private world of reunited families, he might have scuttled the prodemocracy movement and reimposed a relatively benign authoritarianism. Instead, the amir hesitated and unwittingly forged a broad united prodemocratic front that could truly challenge his rule. Instead of fracturing, the Kuwaiti opposition came together, voicing a unified demand for a more open, participatory political system. The amir finally agreed to hold elections for the National Assembly in October 1992. In the interim, the National Council continued to meet.
There is little postwar change in the ruling family's dominant position in the country, although probably more grumbling occurs in private about the family's behavior. The Al Sabah continue to control the highest posts, although there have been changes in personnel. In April 1991, the government announced a new cabinet. Whereas the overall presence of the ruling family changed little, the number of cabinet members from the Salim branch rather than the Jabir branch increased, a shift that usually had occurred only after a succession. In the cabinet, Sabah al Ahmad Al Sabah, minister of foreign affairs since the 1960s, was replaced by Salim as Salim Al Sabah, formerly minister of interior. In addition, Minister of Finance Ali al Khalifa Al Sabah stepped down, and Minister of Defense Nawwaf al Ahmad Al Sabah was appointed to the less significant post of minister of social affairs and labor. The opposition hoped that the primary check on the royal family and the cabinet would be the National Assembly. Following the October 1992 election, the Salim and Jabir branches' representation in the cabinet became more balanced.
In 1993 the government continued to express a profound ambivalence about political liberalization. Although it lifted press censorship in January 1992, journalists face some continuing restrictions and criticism of political coverage and debate by the government. The government has banned several public meetings by opposition groups and private associations. The October 1992 election revealed the basic forces that are likely to continue to shape Kuwait's political future into the twenty-first century. The first force is an historically grounded and popular impulse toward political liberalization. Although the prodemocracy movement may experience times of relative quiescence as it has in the past, it is unlikely to be extinguished. The second is what appeared in the immediate postinvasion period to be a growing impulse toward more authoritarian rule. Whereas Kuwait historically has not experienced heavy-handed government, pockets of its population (some foreigners and Shia) have felt the heavier hand of the state at times. The amir's efforts to develop a larger internal security apparatus to use first against the resident Palestinian population and then against the national opposition threatens Kuwait's prodemocracy movement. These efforts also ran into strong opposition when the National Assembly convened in October 1992. Like the prodemocracy movement, the new security force will not vanish unless compelled to do so. The invasion thus appears to have activated both a more authoritarian impulse in the government and a more prodemocratic impulse among the population. The postinvasion period has seen the struggle between these two forces.
Reconstruction after the persian gulf war
The invasion and occupation had a transformative effect on virtually every aspect of Kuwaiti life. Iraqi troops plundered and looted the city of Kuwait. Iraqi occupation forces, according to reports of human rights monitoring groups, tortured and summarily executed those suspected of involvement in the underground opposition movement that quickly emerged.
In the course of the occupation, more than half the population, foreigner and citizen alike, fled Kuwait. After the reestablishment of Kuwaiti sovereignty in February 1991, and the restoration of basic services soon afterward, the population began to return. In May 1991, the government opened the doors to all Kuwaiti citizens who wished to return. The government was far more reluctant to readmit nonnationals, whom it considered a security risk and whom it regarded as not needed in prewar numbers owing to the postwar constriction of the economy. Consequently, relatively fewer nonnationals were allowed to return. A National Bank of Kuwait report estimated the total population of Kuwait in March 1992 at 1,175,000 people, 53 percent of whom were Kuwaitis, compared with an estimated 27 percent Kuwaitis of the 2,155,000 population on the eve of the Iraqi invasion in 1990.
The postoccupation Kuwaiti population differs sharply from that before the invasion. The population is divided psychologically between those who experienced the direct horror of the Iraqi occupation and survived and those who spent the war abroad in what seemed a relatively comfortable exile to many of those who stayed in Kuwait. But the shared experience has unified the country in other ways. Because Kuwait is a small country with large family groups, almost every Kuwaiti lost family members to the Iraqi forces, and there is continuing uncertainty over the 600 or more Kuwaitis that remain prisoners in Iraq. The fate of those who disappeared is an issue of national concern. Regardless of personal losses and experiences during the occupation, the society as a whole has been traumatized by the memory of the invasion and by the uncertain future. A government led by a ruling family that fled in the face of the Iraqi danger can do little to dispel this ambient fear. One expression of the insecurity is a general concern about lawlessness, both a breakdown in some of the peaceable norms that had united prewar Kuwait and a breakdown in the government's ability to enforce those norms owing to the widespread possession of guns (a result of the war) and the reluctance of a still fearful population to return those guns to the state. After the initial lawless months following liberation, the government recovered control of internal security and reinstituted the rule of law.
The position of nonnationals in postwar Kuwait is very different from that of citizens. Perhaps two-thirds of the foreign population fled during the invasion and occupation. Most of those who fled have not been allowed to return, notably the large Palestinian population, who, owing to the public support of Iraq by many prominent Palestinians outside Kuwait, became the target of public and private animosity in the months after liberation. Before the war, Palestinians composed Kuwait's largest foreign population, numbering perhaps 400,000. By 1992 that number had fallen to fewer than 30,000. In the first postwar days, many Palestinians who remained became victims of private vigilante groups, of which some were apparently linked to members of the ruling family. Human rights monitoring organizations such as Amnesty International and Middle East Watch have reported the murder of dozens of Palestinians and the arrest and torture of hundreds more. The most dramatic transformation is the exodus of the bulk of the Palestinian population. The reaction against Palestinians and other members of groups or states whose leaders had supported Iraq expressed itself in 1991 in a series of show trials of alleged collaborators, carried out, according to international observers and human rights monitoring groups, with little regard for due process. In the face of international criticism, the amir commuted the many death sentences, some given for rather small offenses, that the court had handed down. Trials that took place in late 1992, however, were regarded by international human rights groups as being fair and respecting due process.
One of the first policy decisions the government made on returning to Kuwait was to reduce Kuwait's dependence on foreign labor in an effort to ensure that Kuwaitis would henceforth remain a majority in their country. Former foreign workers are unhappy with this policy, but there is little they can do. Divided between those who oppose Iraq and those who do not, they pose no unified threat. Their energy has been dissipated by individual efforts to arrange to stay. The government and population alike remain deeply suspicious of the nonnational population.
After the war, the government announced it planned to restrict the number of resident foreigners, to keep the nonnational population below 50 percent of the total population, and to ensure that no single non-Kuwaiti nationality would make up more than 10 percent of the total population. In December 1991, the government closed most domestic staff employment agencies and drew up new regulations covering the licensing of domestic staff. In early 1992, the Ministry of Interior announced new rules for issuing visas to dependents of expatriate workers, limiting them to higher wage earners. Looking further into the future, the government approved a resolution in March 1992 doubling to US$14,000 the sum given to young men at marriage in an effort to encourage local population growth. In June 1992, the government announced it had set aside US$842 million for end-of- service payments to foreigners.
The new policy of limiting the number of foreign workers has had serious economic consequences. Foreigners represent many of Kuwait's top technical and managerial workers. The exodus of most of the nonnational population has created special problems for an education system that in 1990 was still heavily dependent on foreign teachers. The direct damage inflicted on school property and looting by Iraqi forces aggravated the education problem. Nonetheless, in September 1991 the university and vocational schools reopened for the first time since the occupation.
The exodus of foreigners also has hampered the health care system, as did the systematic looting of some the country's modern health equipment by Iraqi forces. The invasion and war added some new health concerns, which include long-term deleterious health effects owing to the environmental damage and to the psychological impact of the war.
Nevertheless, the same forces that generated a prewar need for labor remain operative. A number of years are needed to train Kuwaitis for many of the positions held by foreigners. In the interim, indications are that the preinvasion shift away from Arab and toward Asian labor will continue. One small benefit of the new labor policy is that the government will save some money on services previously provided to the larger foreign population. The basic shortage of sufficient quantities of national manpower, coupled with a political and social reluctance to increase womanpower, limit the extent to which the government can do without imported labor.
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