Kuwait parliament on Wednesday passed a bill requiring the government to buy 744 million dinars ($2.6 billion) in private bank loans owed by citizens and reschedule repayment after waiving interest.
Fifty members, including all 13 cabinet ministers present, voted for the bill that according to some MPs would cost state coffers between $1.0 billion and $2.5 billion over a 15-year period.
Three MPs abstained while four others opposed the legislation in this oil-rich state which provides a cradle-to-grave generous welfare system to its citizens who pay no income tax and receive services free or at highly-subsidised rates.
Under the law, a special family fund will be set up to buy all outstanding loans taken from conventional banks before March 30, 2008, waive interest and reschedule repayments over a period not exceeding 15 years in easy instalments.
According to the parliament's financial and economic affairs committee head, MP Yussef al-Zalzalah, the debt relief scheme covers 47,444 Kuwaiti citizens.
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MPs agreed to a government demand to exclude clients of Islamic banks and companies thus reducing its cost. When the bill was passed in principle two weeks ago, it included Islamic loans.
The government had rejected a similar bill passed overwhelmingly by parliament in January 2010. At that time, the size of debt stood at around $21.6 billion and the interest at $5.2 billion.
The government's change in position came amid a bitter political dispute and after the election of a pro-government parliament in a December poll boycotted by the opposition, which has staged several street protests.
To become effective, the law must be signed into legislation by the ruler of the Gulf state.
OPEC member Kuwait holds assets estimated at $400 billion, mostly invested abroad, amassed during the past 13 years on the back of high oil prices.
The emirate has a native population of 1.2 million people in addition to 2.6 million foreigners.