Iraq Tightens Control Over Kuwait, Outlaws Its Currency : Finance: Analysts say the move is certain to fail because the government-in-exile is still buying the nation’s dinars.

In a move designed to further demoralize Kuwait and strengthen Iraq’s hold on the occupied country, Iraqi authorities in Kuwait on Monday began enforcing a strict new order that outlaws Kuwait’s national currency.

The order, announced by Iraq’s economic commission in Baghdad, says Kuwaiti dinars must be exchanged for Iraqi dinars by Oct. 6, at the exchange rate of 1 to 1. Kuwaiti currency will be worthless.

Before Iraq’s Aug. 2 invasion of Kuwait, the Kuwaiti dinar, backed by huge oil reserves and billions of dollars in foreign investments, was the equivalent of 12 Iraqi dinars, which are now virtually worthless in the international market.

Several analysts said the move announced Monday is certain to fail because Kuwait’s wealthy government-in-exile is still buying Kuwaiti dinars at a rate of $3.50 to 1. But experts in Baghdad said the move is a key indicator of Iraqi President Saddam Hussein’s continuing strategy in occupied Kuwait.

“He wants to remove everything that is Kuwaiti,” said a Western diplomat who has traveled to Kuwait several times since the invasion. “The more you have there that is Kuwaiti, the harder it is to say it’s a part of Iraq.

“Certainly, this currency order is an important indicator of that overall strategy. As a symbol of nation and pride, currency is even more important than a national flag. Nothing is more humiliating than having worthless money.”

Another diplomat saw in Monday’s order an attempt by Hussein to keep all his options open.

“Even if Hussein is forced to pull out of Kuwait, he can always sell back all the Kuwaiti dinars he’s getting, for next to nothing, at the official exchange rate. And that alone is quite a profit.”

Most independent analysts in Baghdad said the currency order, the latest in a series of steps that began with the conquest, is another example of Hussein’s calculated approach to the situation.

“I think he knows he’s got to pull out eventually, but it will be at a big price,” the Western diplomat said. “He’ll leave, but he’s going to make it very expensive.”

The diplomat cited refugee accounts of how Kuwait is being looted and offered his own experience as further evidence.

“At the (Kuwait) airport we watched them load entire Rolls-Royce aircraft engines into the hold of an Iraqi Airways jet,” he said. “Brand-new cars were being flown up to Baghdad.

“At the hospitals they have removed CAT-scan equipment, X-ray machines and most of the medicines. Now, what is a hospital without medicine? A hotel?

“The whole approach is a systematic effort to remove Kuwait’s most valuable assets and bring them to Iraq, and the dinar-for-dinar order is just the most formal and sweeping. They’ve taken machines, furniture, entire stores of goods, so why not all the cash as well?”

Officially, Iraqi authorities insist that there is no looting, that looting is not possible now that Kuwait is a part of Iraq. The economic commission said the currency program is intended simply “to prevent duplication in exchanging both currencies (after) the merger of Iraq and Kuwait.”

But the order added that after Oct. 6, the Kuwaiti dinar “will be an illegal currency,” suggesting that anyone caught carrying Kuwaiti money out of the country will be subject to arrest and prosecution.

Kuwaitis fleeing into Saudi Arabia have said that Iraqi authorities were confiscating their passports and other documents in what they described as an effort to eliminate Kuwait’s identity. Kuwaiti jobs, they said, were being filled by Palestinians.

The Western diplomat said he saw many Iraqis “masquerading” as Kuwaitis, living in their abandoned houses and wearing traditional Kuwaiti clothing.

“They don’t know how to wear the robes properly,” he said, “and they wipe their faces with the kaffiyeh (headdress), which the Kuwaitis would not think of doing.

“There’s an increase in the number of Iraqis in Kuwait, on every level. Even the regular army has been replaced at nighttime checkpoints by civilians of the popular army.”

In the meantime, attacks on Iraqi troops by the tiny Kuwaiti resistance have reportedly all but stopped.

“It’s very quiet now,” a Westerner who left Kuwait last week said. “But the Kuwaitis are Bedouins, a quiet, dangerous people. They are said to be putting out contracts on high-ranking Iraqis, and the Iraqis are taking precautions, like not traveling alone.”

People coming out of Kuwait say the country’s infrastructure has been virtually destroyed. The telephone system has all but collapsed. Sewers are backing up and traffic lights are failing.

Western development experts who have emerged from Kuwait said that Iraqi crews are working feverishly on a steel pipeline that appears to be a water line.

“It’s about two feet in diameter,” one expert said. “Is it for oil? It’s a bit big for oil. I think it’s for water.”

Before the invasion, Iraq had proposed to Kuwait that the two undertake a water line as a joint project. Oil-rich Kuwait has spent billions of dollars on desalinating water from the Persian Gulf, and Iraq, which has abundant fresh water, was to satisfy Kuwait’s need--at a price.

The problem, according to one diplomatic source, “was that Kuwait wanted a quid pro quo. Why give all that money to Iraq when they could build a new desalination plant? In exchange for signing on the dotted line, what the Kuwaitis wanted was a border treaty, which of course is what triggered the invasion.

“Now, you see, the Iraqis are building the pipeline so that if they have to give Kuwait back, it’ll be a done deal. Like the currency order, it allows Hussein to keep all his options open, so that no matter what happens he’ll come out ahead of where he was before the whole thing started.”