AGAINST Forgiving Loans « Alpha Dinar- talking Gulf finance

Members of the Kuwaiti parliament are, yet again, working on a proposal that forces the government to pay all outstanding interest on consumer loans. Some even want the government to write-down the loans in their entirety. Another proposal, in the works, asks the government to write-off all outstanding utility bills. Mind you: utility bills already mostly subsidized by the government!

Both laws are unfair, unrealistic, unnecessary, reckless, destructive, and morally hazardous. Yet, regardless of all the scary adjectives describing the consequences of such proposals, both could actually pass.

Unfair: Some people simply did not take loans. Thus, a portion of Kuwaitis will benefit, while others get left out. What about future generations? Instead of wisely investing their depleting oil resources, we spend it on paying for perishable consumer goods.

Unrealistic and unnecessary: It just does not make sense! According to official figures, only 3.3% of consumers are defaulting on their loans and only 2.5% of all outstanding loans are in default. Is it a significant problem? No. However, it could definitely turn into one if we forgive loans since it will encourage reckless and morally hazardous behavior.

Reckless & morally hazardous: Forgiving loans now will set a precedent for the future. The first thing someone whose loan has been forgiven would do is take on more debt simply because they assume it will be forgiven yet again.

Destructive: It further enhances the consuming vs. producing mentality of citizens. Oil will eventually deplete and future Kuwaiti generations will suffer.

Instead of forgiving loans, Kuwait should invest in infrastructure and human resources. The well-articulated picture above is from a 2008 proposal for the “City of Silk”. More than three years have passed, and we did not hear of any updates whatsoever. If our government cannot wisely invest in infrastructure and human resources, then it would be more prudent to invest the additional portions of our surplus money through the Kuwait Investment Authority.