The Market in the Car Park
For about eighteen months Kuwait ran a second, unofficial stock market out of an air-conditioned car park in Jibla, where shares were bought with cheques post-dated up to a year ahead and nobody checked whether the money behind them existed. When it stopped in August 1982 the paper handed in came to roughly 94 billion dollars, and every commercial bank in the country but one was insolvent.
The Souk Al-Manakh was a car park. Not a figure of speech — an air-conditioned parking garage in Jibla, in the old quarter of Kuwait City, with dealers at folding tables and prices chalked up on boards. It had no listing rules, no clearing house, no regulator and no legal standing of any kind. It opened in 1979 on ground that had been a camel market — a manakh is where a caravan kneels its animals — and for two years it traded quietly enough that nobody outside the country had heard of it. Then, for about eighteen months from early 1981 into the summer of 1982, the claim made about it — at the time, and repeated ever since — was that it had become the third largest equity market in the world by capitalisation, behind New York and Tokyo.
When it stopped, the Ministry of Finance ordered every outstanding piece of paper turned in and counted. The total came to roughly 94 billion US dollars, written on close to thirty thousand post-dated cheques by about six thousand people, in a country whose entire annual output was a small fraction of that. Every commercial bank in Kuwait but one was left insolvent and propped up by the Central Bank. The exception was the National Bank of Kuwait, which had refused to lend against the trade.
Why there was a second market at all
Kuwait's official exchange had already crashed once, in 1976 and 1977, and the government had bought its way out — supporting prices with state purchases, then tightening the rules on what could list. The tightening worked in the way such things usually do. It left a great deal of oil money in a very small country with very few legal things to buy, and the money found the gap: shares in companies incorporated elsewhere in the Gulf, in Bahrain and the Emirates, which were not Kuwaiti securities and therefore fell outside Kuwaiti listing rules, while being traded entirely by Kuwaitis in Kuwait. A number of these companies did nothing. Some of them owned nothing at all. They were vehicles for the trade in their own shares, and that turned out to be sufficient.
The cheque as a credit instrument
The mechanism was the post-dated cheque, and it is the whole story. A buyer paid not in cash but with a cheque dated months ahead — commonly six, sometimes twelve — and for the privilege of deferral paid a premium over the spot price that could run to a hundred per cent or more. Nobody verified that funds existed behind the cheque, because the cheque was not really an instruction to a bank. It was a personal undertaking in a society where everyone in the room knew everyone else's family, and the social cost of dishonouring one was assumed to be security enough. Cheques were endorsed onward, so a single sheet of paper could carry four or five names before its date came round. Nobody kept a register, because there was nobody whose job it was to keep one.
A post-dated cheque written by a man everyone knows is a promise. Thirty thousand of them, endorsed and passed along and settling against each other, are a currency — and Kuwait spent a year and a half with two of them in circulation, only one of which the central bank had issued.
August 1982
The end came when a dealer, for whatever reason, took one of these cheques into a bank and asked for the money. It bounced. The man who had signed it was young, worked at the passport office, and had put his name to paper in quantities no salary anywhere could stand behind. Once one cheque had been presented, everybody had a reason to present. In September the Ministry of Finance shut the market and ordered every outstanding cheque registered with it for adjudication, which is why a figure exists at all: the 94 billion is not an estimate but a count of paper handed in. A small number of dealers had written the great bulk of it.
What it cost
Kuwait absorbed the loss, which almost no other state of its size could have done. The Kuwait Clearing Company was created in 1982 specifically to unwind the claims; a rescue programme bought distressed portfolios and settled small investors ahead of large ones; the Central Bank stood behind the banking system more or less in its entirety. What made that possible was money the country had deliberately put out of its own reach. The Kuwait Investment Board had been buying foreign assets from London since 1953, before independence, which makes it the oldest sovereign wealth fund in the world, and a law of 1976 created the Future Generations Fund, taking ten per cent of state revenue every year and locking it behind a requirement that parliament pass an act before a dinar comes back out. The Manakh was settled from the general reserve. The locked fund stayed locked, which was the entire point of locking it.
The other bill was constitutional. The National Assembly, restored in 1981 after five years of dissolution, wanted names: which dealers, which banks, which families, and who inside government had been holding shares while deciding what to do about them. It obtained some of them. On 3 July 1986 the Amir dissolved the Assembly and suspended articles of the constitution, and it did not sit again until 1992. The Manakh was not the only cause — the oil price had collapsed and the Iran-Iraq War was reaching Kuwaiti tankers — but an elected chamber demanding a list of debtors in a country where the debtors were the establishment was part of the arithmetic. The argument that followed ran through the diwaniya meetings of 1989 and 1990, and it has not entirely finished.
The monument
There is no plaque in Jibla. The building is a building, and Kuwaitis under fifty mostly know the episode as a phrase their parents use about anything that looks too easy. What the crash actually produced is institutional and takes some looking for. The official exchange was reorganised by decree in 1983. The Clearing Company set up to sort out the wreckage still settles every trade made on it. And it took until Law No. 7 of 2010 — twenty-eight years — for Kuwait to establish a Capital Markets Authority, which made it the last state in the Gulf to acquire an independent market regulator. The exchange was corporatised as Boursa Kuwait and sold to private shareholders in 2019; MSCI upgraded the country to emerging-market status in 2020. That is a very long way round to an ordinary stock market, and the reason the journey took forty years is sitting unmarked in a car park in Jibla.