Kuwaiti Assets Are Back in Business

CAPITAL WITHOUT A COUNTRY

IN London's financial district they are calling it Kuwait-by-the-Thames. Iraq's Aug. 2 invasion of the oil-rich Gulf emirate prompted the instant freezing of all Kuwaiti assets in Britain and elsewhere in the West. But Kuwaiti officials do not want the estimated $50 billion of assets locked up in London to just lie around doing nothing, risking losses.

Now, seven weeks after the invasion, the Kuwaiti Investment Office (KIO) in the British capital is up and running again, while the emirate's deposed rulers strive to operate an effective government-in-exile in Saudi Arabia.

In mid-September, to underscore its ``back-in-business'' status, the KIO took up its entire entitlement of a $60 million rights issue from Great Western Resources, a United States-based oil company quoted in London. Other transactions have followed.

But, although every effort is being made to make all appear as normal as possible, the crisis management of Kuwait's frozen resources in the City of London is a unique operation.

There have been freezes of foreign assets before - against Iran when it held US Embassy personnel hostage, and against Libya during tensions over terrorism. But this is the first time a Western embargo has been imposed on an Arab country to shield its financial holdings from an aggressor.

The KIO's chairman, Khaled al-Sabah, a member of Kuwait's royal family, is believed by British officials to have visited his Cheapside offices a number of times since the invasion. Three full-time managers are back at their London desks.

Executives of the Kuwait Petroleum Corporation, another London-based organization caught up in the freeze, are working as well. The governor of the Central Bank of Kuwait is here to help coordinate the activities of several Kuwaiti investment banks and maintain their liquidity.

Sheikh Ali al-Khalifa, finance minister of the deposed government, in the past month has toured European capitals, thanking governments for their opposition to Iraq and trying to reassure them that Kuwait's enormous wealth is in good hands and unlikely to create serious problems on world money markets.

Kuwait's total assets around the world are believed by Bank of England officials to be worth more than $100 billion. Three-quarters of its gold reserves are in European vaults. The rest, held in Kuwait, is assumed to have been plundered by the Iraqis. Among Kuwait's British holdings are 10 percent stakes in the Midland Bank and British Petroleum.

One of the KIO's most urgent problems after the freeze has been to achieve relative freedom of operation, and in this the Bank of England has proved helpful. At first the KIO could move money around only if the Bank of England approved each transaction. Now the rules have been relaxed.

Aid to Turkey

One fear of London financial experts is that the KIO will lose its credibility as time passes and Iraq's hold on Kuwait tightens. Another is that Kuwaiti resources will begin to bleed away as the exiled government helps Arab and other countries to withstand the embargo against Iraq.

For example, Kuwait's rulers have promised Turkey financial help to the tune of $3 billion a year for refusing to let Iraqi oil be pumped overland through Turkish pipelines. This has to be paid out of the investment income of assets generating an estimated $150 million a week.

Short-term, the KIO has a problem helping ordinary Kuwaitis exiled in Britain and other countries, but with assets in Kuwait. Early in September it was reported that the government-in-exile was studying a plan to lend up to $90,000 to each Kuwaiti living in Europe and Asia and able to prove title to his assets.

A KIO official described as ``exaggerated'' suggestions that Iraqi President Saddam Hussein had gotten his hands on a huge chunk of their country's wealth. He cited an International Monetary Fund estimate that the Iraqis had seized $800 million in foreign reserves, $32 million in bullion, and about $1 billion in commercial bank assets.

Pamela Smith, an Arab affairs specialist with Middle East Economic Digest, a London-based magazine, said the Iraqis would have to use much of the money they grabbed to help finance attempts to break the UN-backed embargo. ``The Iraqi dinar is virtually worthless. Sanctions busters will demand gold or hard currency,'' she said.

Long-term difficulties

Longer-term, British bankers foresee serious problems even if Iraq is forced to hand back Kuwait to its former government.

``Kuwait has to be rebuilt, and that may require quite large-scale liquidation of assets held abroad,'' said one London banker.

``If the royal family is restored, the pressure will be on it to share its wealth more widely with the people. Also, Arab countries which don't enjoy oil wealth of their own are certain to urge any future Kuwait government to pay them more out of the riches at its disposal.... And that must put the squeeze on the assets now frozen in London and elsewhere.''