KUWAIT, 8 October 2007 — Kuwait, which hopes to emulate the success of neighbors Dubai and Bahrain, will not become an international financial center until 2020, the Gulf Arab state’s central bank governor said in remarks published yesterday.
“The plan to transform Kuwait into a financial and trading center is a long-term project that will not happen overnight. It will take until 2020 to execute this plan,” Al-Rai daily quoted Sheikh Salem Abdul Aziz Al-Sabah as saying.
A major OPEC exporter, Kuwait wants to diversify its economy away from oil to become a regional financial and trading center, but its efforts have been paralyzed by political disputes.
Government reform plans aimed at liberalizing the economy, including a bill to slash high taxes on foreign firms, are stuck in parliament due to a long-running standoff that analysts say is unlikely to be resolved any time soon.
In contrast, countries such as the United Arab Emirates and Qatar have used the windfall from high oil prices to power rapid economic growth and attract foreign firms.
Sheikh Salem, a member of the ruling family, said in the interview that the project to transform Kuwait would require efforts by all involved and would be difficult to execute without consensus.
Meanwhile, Kuwait’s decision to drop the dinar’s peg to the dollar in May has helped contain inflationary pressure but more time is needed to assess the full impact, the central bank governor said in remarks published yesterday.
Kuwait dropped its peg to dollar and linked the dinar to a basket of currencies on May 19, saying the US currency’s slide on global markets was fueling inflation by making some imports more expensive.
The central bank of the Middle East’s fourth-largest oil exporter has allowed the dinar to appreciate more than 3 percent against the dollar since then. The US currency hit a record low against a basket of six currencies last week.
“The decision (on the) peg has helped in stemming part of the inflationary pressure resulting from a fall of the dollar...,” Al-Rai daily quoted Sheikh Salem as saying.
Inflation fell to 4.36 percent in June after staying above 5 percent during the previous three months, its highest rate in 12 years.
The cost of food, most of which is imported to the desert nation of 3.2 million, rose 2.3 percent in June, compared with 5.6 percent in May, government data showed. However, housing prices accelerated to 7.1 percent, compared with 4.08 percent the previous month.
There were other factors affecting inflation in Kuwait, including rising prices of commodities such as wheat, Sheikh Salem said.
“Our main target is lowering inflation,” he said. “Inflation is the enemy No.1 for central banks.”
Kuwait left the dinar currency’s reference rate unchanged yesterday for the first time in six days after the dollar fell against a basket of currencies at the end of last week’s trading.
The dinar will trade around a mid point of 0.28015 per dollar, the Central Bank of Kuwait said.
The dollar rose sharply on Friday after data showed the US economy added 110,000 in September, the highest since May, but the rally petered out ahead of the long Columbus Day holiday weekend.
In late afternoon trading in New York, the dollar index, a gauge of the greenback’s value against a basket of major currencies, was down 0.2 percent at 78.324. On Monday it had dropped to an all-time low of 77.660.
The currency of the Middle East’s fourth-largest oil exporter has now risen 3.21 percent since May 19, a day before the central bank dropped its peg to the weakening dollar and adopted a basket of currencies.
Kuwait has declined to give the composition of the basket.
The central bank says the dollar’s decline on global markets is driving up inflation and making some imports more expensive.
Kuwait pays for more than a third of its imports in euros.
The Kuwait Central Bank governor said on July 29 the basket gave the bank flexibility to track moves on global foreign exchange markets, state news agency KUNA reported.
