Kuwait Fund for Arab Economic Development

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KUWAIT FUND FOR ARAB ECONOMIC DEVELOPMENT

Organization set up in 1961 to extend foreign aid to Arab, Islamic, and Third World countries, primarily in Asia and Africa.

The Kuwait Fund for Arab Economic Development (KFAED) was the first foreign-aid vehicle entirely financed by a developing state. Established to aid other Arab countries, KFAED's recipient list grew following the rapid rise in world oil prices in the early 1970s to include developing countries around the world. KFAED supplies project aid, mostly in the form of concessional loans, technical assistance, and training. Its capitalization reached KD 2 billion in 1981 and, since then, it has been self-financing: repayments serve as the source of funds for subsequent loans and grants. Kuwait's foreign assistance effort through KFAED and other agencies averaged more than 5 percent of GDP per year from the mid-1960s until oil prices collapsed in the mid-1980s.

Between January 1962 and March 2003, KFAED made 631 loans to 99 countries for a total of KD 3.345 billion, and it supplied KD 73 million in grants and technical assistance to 163 countries. Slightly more than one-half of the commitments in each category went to other Arab states. KFAED also contributed KD 335 million to eight development institutions.

The 1990 Iraqi invasion of Kuwait exposed the ineffectiveness of foreign aid as a generator of diplomatic support for Kuwait among its neighbors and peers. Since then, Kuwait's economic circumstances have become more straitened and Kuwaitis have grown cynical about the utility of foreign aid either to themselves or to populations in recipient countries. In April 2003, responding to sharp criticism and political pressure from other Arab governments and mass publics regarding Kuwait's position on the U.S.-led war in Iraq, several proposals were made in parliament to limit KFAED's autonomy. One sought to amend KFAED's charter to require its awards to support Kuwait's foreign policy goals; another to forbid KFAED to award assistance to any country whose government had attacked Kuwait's support for the 2003 U.S.-led attack on Iraq; a third to require that every new KFAED loan be approved by a parliamentary vote. Despite support for KFAED from the government and liberal elites, and the budget autonomy which offers KFAED fiscal independence from domestic critics in and outside of parliament, the lack of correspondence between the national interests of Kuwait and those of the recipients of its foreign aid leave KFAED vulnerable to a reevaluation of foreign policy tools that could diminish its future role.