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WEEKLY NEWSLETTER
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Kuwait
Index
From the very beginning, government officials were
keenly
aware that oil was a depletable asset, that the country
had few
other resources, and that preparations had to be made for
the day
when there would be no more oil. As soon as the government
began
to receive oil revenues, officials spent less than the
treasury
received, leaving a surplus in the state's general reserve
to be
invested. Because of limited domestic investment
opportunities,
most investments were made abroad.
World Bank (see Glossary)
economists estimate that about 25 percent of revenues were
placed
in foreign assets during the 1950s, although the Kuwaiti
government's published data have always been vague about
reserves
as well as about some other economic variables.
In the 1950s and 1960s, Kuwait began investing overseas
in
property and businesses in Britain. In 1952 Kuwait
established an
office in London, staffed with experienced British
investment
counselors who guided the government's placement of funds.
In the
same year, Kuwait created investment relations with a
large New
York bank. Because of the vastly expanded oil revenues of
the
1970s, Kuwait's overseas investment program grew
tremendously. In
1976 the government established the Reserve Fund for
Future
Generations, into which it placed an initial US$7 billion.
It
resolved to invest 10 percent of its revenues annually in
the
reserve fund. Money from the fund, along with other
government
revenues, was invested in overseas property and industry.
In the
1970s, most of these funds were invested in the United
States and
in Western Europe: in German firms (such as Hoechst and
DaimlerBenz , in each of which Kuwait owned 25 percent), in
property, and
in most of the United States Fortune Five Hundred firms.
In the
1980s, Kuwait began diversifying its overseas investments,
placing more investments in Japanese firms. By the late
1980s,
Kuwait was earning more from these overseas investments
than it
was from the direct sale of oil: in 1987 foreign
investments
generated US$6.3 billion, oil US$5.4 billion. The
Financial
Times of London estimated Kuwait's overseas
investments in
early 1990 at more than US$100 billion, most of it in the
Reserve
Fund for Future Generations.
The Iraqi invasion proved the importance of these
investment
revenues. With oil revenues suspended, the government and
population in exile relied exclusively on investment
revenues,
including sales of investments for sustenance, for their
share of
ongoing coalition expenses and for postwar reconstruction
and
repair of the vital oil industry.
Data as of January 1993
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