Kuwait on Sunday unveiled a multi-billion dollar stimulus plan that includes wide-ranging state guarantees for bank loans and assisting troubled investment firms to repay their debts.
Draft legislation approved by the cabinet on Thursday stipulates that the state would guarantee 50 percent of an estimated four billion dinars (13.8 billion dollars) of new credit facilities to be granted by banks to local companies.
"This is a way to encourage local banks to provide fresh credit to productive local companies to overcome shortage of cash," governor of Kuwait central bank Sheikh Salem Abdulaziz al-Sabah told a media conference.
Under the legislation, the state would guarantee half the credit facilities that would be provided by banks to local investment companies to help them repay part of their debt. Sheikh Salem said that debt on the 99 Kuwaiti investment firms is five billion dinars (17.3 billion dollars), 7.6 billion dollars of which are owed to foreign banks and financial institutions.
The governor said that the package is estimated to cost public funds a maximum of 1.5 billion dinars (5.2 billion dollars). The draft legislation, which is expected to go before parliament soon, also guarantees for 15 years any drop in the value of local banks' investment and real estate portfolios.
The package aims to "safeguard the financial system and stabilise the domestic economy against the fallout of the global economic crisis," the governor said.
Last year, Kuwait guaranteed deposits of all banks operating in the country.
A number of Kuwaiti investment companies have defaulted on loans as credit facilities have become difficult to obtain and the value of their assets has dropped sharply.
Some of them have laid off a number of employees and cut the salaries of others as the price of their shares on the stock market has dropped sharply.
Last week, lawmakers urged swift government intervention to rescue the local economy from what they called an imminent collapse. A number of lawmakers are however demanding the money be used to help ordinary Kuwaitis rather than bailing out wealthy businessmen.