Price debate dominates Kuwait election campaign

KUWAIT Thu May 15, 2008 1:03pm IST

KUWAIT May 15 (Reuters) - Kuwaitis tuck into the sumptuous mounds of rice and meat traditionally on offer at campaign rallies, but soaring food prices have left a bitter taste in voters' mouths in the runup to Saturday's election.

"Rising prices; it is a plague that is eating us. Rising prices of housing and food," Hashem Saad said on the sidelines of a rally, before heading to the heavily-laden buffet table.

Inflation has taken centre stage in the Gulf Arab state's election campaign, with candidates across the political spectrum promising more subsidies and demanding the state spend an oil-driven surplus that topped $43 billion last fiscal year.

Inflation rose to a record 9.5 percent in January, driven by rising food costs in a desert state that relies on imports.

In February, the government raised pay for the public sector, which employs more than 90 percent of Kuwaitis, to help ordinary people cope with rising prices.

It was a dispute with parliament, which was pushing for another raise, that finally prompted the cabinet to resign in March, bringing a long-running political crisis to a head.

Kuwait's ruler dissolved parliament in response and set new election for May 17, but with prices still rising, inflation is likely to remain a hot political issue in the next chamber.

"I, along with other MPs, presented a request to establish a fund for 25 percent of Kuwait's investments, and the profit from these investments will be distributed in cash to Kuwaitis," Islamist candidate Waleed al-Tabtabai told supporters.

PRESSURE ON CENTRAL BANK

Inflation is taking the shine off record revenues that Gulf Arab countries are enjoying amid rising oil prices. Many have increased state salaries, introduced rent caps or controls on the cost of basic food to help people cope with rising prices.

But the issue poses a greater challenge to Kuwait, where nationals enjoy an active parliamentary system, than most of the Gulf Arab region, where political freedoms are limited.

"The government is not serious about tackling prices," said Hussein Abdullah, who was attending an election rally.

Kuwait is feeling the pinch because while its biggest export, oil, is priced in the weak dollar, it pays for a third of its imports in the stronger euro. Rents and salaries are also facing upward pressure as expatriates move to Kuwait to seek jobs in a region enjoying rapid economic growth.

Kuwait surprised fellow Gulf states a year ago by dropping a peg to the dollar and tracking a basket of currencies to reduce import costs, upsetting plans for Gulf monetary union.

Parliament also pushed through the creation of a $1 billion fund in December to bail out Kuwaitis unable to repay debts.

Deputies have even called on the central bank to cut its benchmark discount rate, which banks use to set lending rates, to reduce the interest burdens of indebted nationals.

The problem with popular demands for higher pay and lower interest rates, says the central bank, is that they would drive prices even higher.

Central Bank Governor Sheikh Salem Abdul-Aziz al-Sabah, a ruling family member who rarely talks politics, urged the government last week to ignore parliament calls for more state spending as it would counter efforts to contain inflation.

"Monetary tools alone won't be able to curb inflation," Sheikh Salem told the state news agency.

(Editing by Lin Noueihed and Samia Nakhoul)

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