Saturday, November 15, 2008

Order Up: Court Orders Kuwait to Close Stock Exchange

Sources: Court Orders Closure of Kuwait Stock Market, Financial Times; Court Closes Kuwaiti Stock Market, BBC News; Kuwaiti Goes to Court to Close Stock Exchange, International Herald Tribune; Court-Ordered Closure Halts Slide on Kuwait Stock Exchange, Los Angeles Times

On Thursday, November 13, a Kuwaiti judge ordered the country’s stock market to close in order to protect small investors from further declines in their portfolios. The order came after a lawsuit brought by individual investors blaming the government for mismanagement.

The suit, filed Tuesday, asked the government to temporarily close the falling stock exchange to curb losses. The court decided that the stock market should be suspended until November 17, pending the hearing of the investors’ case.

The court’s decision to close the market follows demonstrations and walk-outs by share traders fed up with the government’s lack of action to stem heavy stock market losses in the wake of the global credit crisis.

The global credit crisis has left its mark on the oil-rich Arab nation. The Kuwaiti stock exchange, the second largest in the Arab world, has fallen 43% since June. In addition, one of the main Kuwaiti lenders, the Gulf Bank, is reported to have lost up to $1 billion in failed derivative deals.

Prior to the closure, Kuwaiti sovereign wealth funds bought hundreds of millions of dollars of stock to try to ease the fall. The central bank also injected billions of dollars into the system, but the slide has continued.

Although they respect the decision, government officials said that they would appeal the decisions, which they describe as dangerous. Some analysts and academics agree with the government, questioning the action’s contradiction to principles of free trade and indicating that it will only act to increase panic among investors.

Discussion: Do you think that a state's judiciary should get involved in national economic policy? Should individual investors be allowed to sue government officials for individual economic losses based on what they perceive to be mismanagement? If so, do you think that this will lead to similar lawsuits in situations less dire and comprehensive than the current crisis? Will this action help the situation in Kuwait, or will it simply increase panic?

1 comment:

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