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WEEKLY NEWSLETTER
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Kuwait
Index
Foreign trade has always dominated Kuwait's economy.
Before
the discovery of oil, merchants developed large
transshipment and
reexport businesses that, along with the sale of pearls to
foreign dealers, yielded a substantial part of the
population's
income. The discovery of large quantities of oil provided
a new
and increasingly important export because Kuwait needed
only
small amounts of oil products domestically. Nonetheless,
even
after the discovery of oil, Kuwait's merchants continued
to
develop transshipment and reexport businesses with
neighboring
countries. During the Iran-Iraq War, goods for Iraq passed
through Kuwaiti ports. Oil, however, overwhelmingly
dominated
Kuwait's exports (see
table 8, Appendix).
Kuwait's significant foreign-exchange earnings from oil
exports and investment income largely removed any
constraints on
imports in the pre-invasion period. Almost any commodity
could be
imported, and most import duties were modest. Imports for
Kuwait's high-income economy were mainly finished products
because of the small domestic manufacturing sector (see
table 9,
Appendix). These imports came predominantly from Asian
countries,
followed by those from European countries. Imports of all
kinds
came primarily from Japan and the United States. After the
Persian Gulf War, imports from the United States increased
dramatically (see
table 10, Appendix). Huge oil revenues,
paid in
foreign currencies, freed Kuwait for the most part from
balance
of payments worries (see
table 11, Appendix). The
government
accumulated surplus funds that were invested abroad. A
large part
of these reserve investments abroad, however, were cashed
in
during the Iraqi occupation and the liberation period that
followed in order to pay the expenses of Kuwait and the
allied
coalition.
Historically, Kuwait also invested part of its revenues
in
foreign aid, primarily to Arab states. This foreign aid
increased
substantially as oil revenues rose in the 1970s. It took
many
forms, such as loans, joint financing, equity
participation, and
direct grants, particularly in support of Arab causes. In
the
1960s, the government began placing funds in the Kuwait
Fund for
Arab Economic Development (KFAED), established in 1961.
The best
known of Kuwait's investment organizations and one that
was used
as a model by other oil exporters, KFAED functioned as
both an
investment and an aid agency, providing loans for specific
projects, often on concessionary terms. KFAED's charter
was
changed in 1974, when capitalization was increased to KD1
billion
(for value of the
Kuwaiti dinar--see Glossary),
and the fund
began expanding its provision of funds to developing
countries
worldwide. Most KFAED aid went to development projects,
especially in agriculture, to provide basic services such
as
electricity, water, and transportation and to develop
human
resources through education and health care. A large
amount of
aid went directly from the government to other states. In
per
capita terms, Kuwait's aid program was one of the most
generous
in the world. In the early 1980s, when oil prices were
high,
nearly 4 percent of Kuwait's gross national product
(GNP--see Glossary)
went to the aid program. But in the late 1980s,
the
levels of aid declined along with declining revenues.
After the
Iran-Iraq War started, in 1980, Kuwait increasingly
directed its
aid toward Iraq. During the 1980s, Kuwait lent Iraq an
estimated
US$13 billion. Kuwait's foreign aid slowed considerably
after the
Iraqi invasion in August 1990 and is expected to remain
limited
as Kuwait deals with the costs of reconstruction.
Data as of January 1993
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