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COLUMN ONE : Party's Over, Kuwait Tells Its Citizens : Even a country earning $35 million a day doesn't have unlimited resources. Talk of taxes and benefit cuts is not popular. Leaders say it's time for coddled residents to pitch in.

October 19, 1994|SCOTT KRAFT | TIMES STAFF WRITER

KUWAIT CITY — A glitzy new, 511-seat McDonald's restaurant rests on a rocky outcrop of the Persian Gulf coast here, offering breathtaking views of the blue sea, passing tankers and, lately, American warships.

Unfortunately, though, the guy who lives in the palace across the street is the crown prince of Kuwait. And he doesn't like his new view.

But not to worry. The dispute is being solved in time-honored Kuwaiti fashion--quietly and with money. The government is buying the 3-month-old McDonald's building and offering the hamburger chain another site, a few hundred yards down the coast, without charge.

Money and determination have worked wonders in Kuwait since 1991, when half a million American soldiers joined a worldwide coalition to break Iraqi dictator Saddam Hussein's hold on this small emirate.

Oil wells are pumping again, at a rate of 2 million barrels a day; the environment is steadily improving, and the cradle-to-grave social welfare system still guarantees every Kuwaiti a tax-free income, free medical care and interest-free loans.

But even a country earning $35 million every day for its 600,000 citizens has bills to pay. And the latest crisis with Iraq has Kuwait's leaders preparing, more seriously than any time since oil was discovered in this desert, to force their coddled citizenry to help pay the tab.

"Everyone is going to have to pitch in here," said Saud al Sabah, minister of information, member of the royal family and former ambassador to the United States. "We're tightening our belt. And it's the responsibility of all of us."

Kuwait's $30-billion share of the costs of the Gulf War, along with the $30 billion it spent to extinguish the oil fires and rebuild, have taken their toll, at least on paper. Kuwait also has committed $3.5 billion to expanding its own military and promised to pay as much as half of the at least $500-million tab run up by the international rush to defend it in the current crisis.

No one here questions defense spending, especially in light of the threat posed by Hussein. "Money can always be recovered and made up," Saud said in an interview. "But once you lose your country, you have nothing. We've fully committed our financial resources to this whole operation."

But many Kuwaitis, still nursing their personal financial wounds from the war, are wary of the talk of "fees" and even "taxes" emanating from the palaces where the country's rulers live.

"It's illogical to impose fees," said Ghannam Jamhour, an opposition member of Parliament, "particularly in a country where the citizens see national funds flowing out of the country in loans and grants to other countries in the world."

Kuwait spends considerable sums on development aid, mostly in the non-oil-producing Arab world.

Make no mistake: Kuwait is not poor, not by any measure.

Although war and reconstruction costs have forced it to draw down its foreign investments by 50%, the oil in the ground and the emirate's remaining investments, worth $60 billion, have made it easy to obtain loans at friendly interest rates.

But Kuwaitis are spending too much, and the government, which employs 92% of adult Kuwaitis, is running an annual deficit of $6 billion, large enough to be worrying.

The reasons are obvious: Every Kuwaiti is constitutionally guaranteed a job, free medical care and free education. Their air-conditioned houses have the lowest utility bills in the world. A telephone costs $100 a year, with free local calls. And no one pays income or sales taxes.

Newlyweds can get a free new home from the government simply by applying, though there is a waiting list. If they prefer, Kuwaitis can receive free land and a $210,000, interest-free, 60-year loan to build their own house.

At the end of the Gulf War in 1991, to bolster morale in the besieged emirate and help people get back on their feet, Kuwait's ruling family forgave all loans for everything from houses to Mercedes-Benz cars.

The social cushion already is enormous, and, with half of Kuwait's population younger than 18, the drain on the country's resources is likely to grow rapidly in coming years. So the government is searching for places to cut.

A few months ago, it suggested minimal fees for some medical services but dropped the idea in the face of loud objections. Now the government is considering other alternatives, including charging for local telephone calls, imposing a trial wage tax or increasing the duty on luxury goods. Those higher duties seem likely soon.

"We're talking about luxuries, not necessities," Saud said. "Like Mercedes-Benzes and Rolls-Royces. You pay just 4% now. That's ridiculously low."

Besides raising money, he said, the government needs to "seriously think" about cutting its own spending--or at least redirecting it.

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