COLUMN ONE : Economy Without a Country : Kuwait is conducting business without oil, its lifeblood. But with an estimated $100-billion portfolio, it is nowhere near broke.

The closest thing to home these days is makeshift digs in a drab bank building in central London, 150 Cheapside EC2. A sentry stands guard at the door, walkie-talkie in hand. The nondescript structure houses the Kuwait Investment Office, where the financial strategies of an invaded nation are carried out behind locked doors.

Shrouded in secrecy, swirling with rumors, the Kuwaiti economy in exile operates without the oil that has been its lifeblood for decades. It is an economy without a country, an estimated $100-billion investment portfolio with no place to call home.

“We’ve had lots of governments in exile, but never had a case where the whole population and the economy are in exile,” said Philip K. Verleger Jr., a visiting fellow with the Institute for International Economics in Washington.

Kuwait, of course, is nowhere near broke. The International Monetary Fund estimated that the nation earned $11.6 billion in oil revenues in 1989. In addition, there was $8 billion in income that year from foreign investments, mainly a wide network of refineries in Denmark, Holland and Italy, and the nation’s “Q8” chain of 6,500 gas stations throughout Europe.

“In terms of new crude oil revenues, it would be safe to assume the Kuwaitis don’t have any, but that will not break them,” said Vahan Zanoyan, senior director at the Petroleum Finance Co., a Washington consulting firm. “Even without exporting any oil, they could survive easily. They are truly in an enviable position in that respect.”

Kuwait has been among the richest countries in the world, ranked about 15th in gross national product per capita--even counting the 1.3 million foreigners who are not citizens but who worked there. Now, as an economy in exile with nothing more than income from investments--but no foreign workers to pay--Kuwait’s GNP per capita ranks about 20th, in the neighborhood of Hong Kong, Singapore and Israel.

But even for wealthy Kuwait, financial burdens are piling up. Kuwait Investment Office Chairman Khaled al Sabah, a member of the Royal Family, and other officers have declined to be interviewed. But sources say the investment office has been selling off holdings--including its stake in a British hotel chain and a Spanish oil venture--and even dipping into the formerly sacrosanct Reserve Fund for the Future Generations, which was not to be touched until the year 2015.

Meanwhile, there have been reports of high-level resignations within the organization and infighting allegedly abounds. The British press reported in January that 12 investment office executives had resigned. The office is in flux, said Joseph Story, president of Virginia-based Gulf Consulting Services, which specializes in international oil markets.

Part of the strain comes from the war effort; Kuwait has pledged $18.5 billion so far. But even more burdensome are the estimated half a million Kuwaiti nationals living in exile, who, some sources say, are costing between $450 million and $500 million a month to support. The Kuwaitis are “running an elaborate welfare system,” Verleger said, “paying for people to stay in hotels all over the world.”

Some of these Kuwaiti exiles have done little to garner sympathy, living well abroad while war rages in their homeland. And many in the Arab world continue to bear longstanding grudges against the Kuwaitis for their profligate ways.

Even so, large numbers of displaced Kuwaitis--mainly in Saudi Arabia, but also in London, Los Angeles and other major international cities--have been forced to put their economic lives on hold as they wait for government checks to land in bank accounts or mail boxes.

“You try to tighten the belt a little bit,” said Anwar Almudhaf, a Kuwaiti national who is a doctoral candidate in finance at Claremont Graduate School. “The government does not have the cash flow it used to have. They’re not getting anything from selling oil.”

After the Aug. 2 invasion, Kuwaiti nationals in the United States had to send their passports, visas, school registrations and other documents to the embassy in Washington to register for assistance. Almudhaf said that in many cases, it took more than a month for checks to start arriving.

Almudhaf, his wife and infant son receive a monthly stipend check of about $2,000 from the Kuwaiti Embassy in Washington. That compares to the $3,200 in support he received before the Iraqi invasion, when he got government scholarship money and a salary from his teaching position at Kuwait University.

In London, the Kuwaiti government gives a daily stipend of about $20 to every Kuwaiti adult and about $14 to each child. Health care bills and educational tuition are also paid for, and the government--through the Kuwait Investment Office--pays rent for those who do not own their home or apartment.

Until January, Kuwaitis in London were assigned days for picking up their checks from the office of Kuwait Airways. But since January, they have been able to have the money deposited directly into their bank accounts.

The war has made financial dealings logistically difficult for banks and Kuwaiti nationals alike. Few Kuwaiti financial institutions, observers say, were able to smuggle their records out of their ravaged country, and most Kuwaitis who were out of the country at the time of the invasion did not have all their personal financial documents and records with them.

Yousef S., a consulting engineer in London who would not give his last name, was on his way to Harvard University to finish work on a master’s degree in business administration when Iraqi troops invaded his homeland. He owns an apartment in London and had some money in the United States in American dollars. But most of his savings is still in Kuwaiti dinars, in Kuwait’s Gulf Bank.

“The National Bank of Kuwait was the only bank that was able to smuggle out all of its records complete on computer tapes,” Yousef S. said. “They were able to reconstruct their files and establish exactly how much each customer has. The rest (including the Gulf Bank) were not so fortunate.”

The Kuwaiti government now operates out of Taif, Saudi Arabia, a hill town perched 5,000 feet above the holy city of Mecca that has historically been a retreat for the rulers of Saudi Arabia. The Kuwaitis have taken over the entire Sheraton Hotel, part of the Inter-Continental, and numerous villas and other buildings. All 17 ministries have some operations there.

The minister of oil has a room at the Sheraton that serves as his office; his aides have several other rooms nearby. Among those present are the emir, Sheik Jabbar al Ahmed al Sabah, and crown prince, Sheik Saad al Abdullah al Sabah, and Sheik Ali al Khalifa al Sabah, Kuwait’s finance minister.

“The government is operating smoothly,” said Hasan Sanad, vice president of the Ministry of Information. “We have been having cabinet meetings regularly in Taif to discuss many things.”

Kuwait draws a line between its state coffers and Royal Family funds, observers say, with clearly defined government holdings in the General Reserve and the Reserve Fund for Future Generations.

The Royal Family receives salaries for work in government positions. They also have their own business ventures and investment portfolios. And they receive stipends from the state budget, the so-called privy purse that covers the personal expenses of the sovereignty.

That privy purse comes from the government’s budget, which was 2.4 billion dinars in 1989, or $8.4 billion. Of that, about $7 billion came directly from oil revenues, $290 million came from taxes on property and non-oil profits, and the rest came from other government enterprises. Kuwaitis pay no income tax.

In times of peace, the budget also provided for housing, medical expenses and education costs for all Kuwaiti nationals--only about 800,000 of the country’s 2.1 million residents. Kuwaiti nationals held most of the government jobs and many of the higher-ranking positions throughout the economy. A large Asian, Palestinian and Egyptian work force performed much of the hard labor in the country.

Currently, the day-to-day running of the economy is done largely from London, where the Kuwait Investment Office, the Central Bank of Kuwait and the Kuwait Petroleum Corp. have set up shop.

In September, the investment office sold its stake in Mt. Charlotte Investments PLC, a British hotel chain, to a company owned by New Zealand industrialist Sir Ron Brierley. The sale raised $110.8 million in cash.

In addition, Adnan Saleh, a Kuwaiti who is financial adviser to corporations and individuals from Kuwait and other Gulf countries, said the office recently sold its stake in Arkross Petroleum group in Spain, an oil distribution and petrochemical production company, for an estimated $550 million.

Saleh said the investment office has also drawn down on the Reserve Fund for Future Generations, which consists of money put aside to fund social services and education after Kuwait’s oil runs out.

“I believe that about one-third (of the $39-billion fund) got liquidated,” Saleh said. “It’s all estimates. . . . They took the liquid money out. I have a feeling that, by the time Kuwait is liberated, very little will be left of that money.”

The National Bank of Kuwait also has been forced to jettison some holdings. During the invasion, the bank lost an estimated $5 billion. A bank official who confirmed the estimate refused to elaborate how the assets were lost. As a result, leading financial institutions cut the bank’s access to international money markets, halting loans and foreign currency exchanges.

The bank immediately sold $2 billion worth of securities and other holdings. It also received an injection of $350 million from the Kuwait Investment Office.

Much attention also is focused on keeping the country’s chain of European gas stations operating. Oil analysts say Saudi Arabia is setting aside several hundred thousand gallons of crude oil daily for Kuwait to refine in its European operations so that the gas stations can be supplied. The Kuwaitis are also buying oil on the world’s spot markets.

“Even though they haven’t got a country, they’re still a going oil operation,” said consultant Story. “They’re still refining and marketing oil, in England, Scandinavia.”

Story notes that the investment office still owns 9% of British Petroleum and a large chunk of Daimler-Benz, the German auto giant.

In the United States, it continues as sole owner of Santa Fe International, an Alhambra-based oil exploration company that, according to Dun & Bradstreet, had 1989 revenues of $450 million. Suppliers and industry consultants say Santa Fe, whose management operates independently of the Kuwaiti government, has not made any noticeable changes in its far-flung operations since the Iraqi invasion.

In Singapore, for example, Santa Fe is spending about $100 million to build one of the world’s largest and most sophisticated deep-sea oil rigs, Galaxy 1, say industry officials. The company is “going on as if nothing has happened,” said John J. Swoboda Jr., president of VMW Industries, a Texas firm that designs and supplies heavy equipment to the oil industry. “We have received some contracts (from Santa Fe) last month.”

There also are no signs of significant changes, sources say, at Kuwait’s other major U.S. investment: Great Western Resources, a Houston-based oil concern. Kuwait owns about 30% of the firm. Company officials refused to return telephone calls.

“They have such big chunks of so many big companies that it would be against their interest to sell off,” Story said.

Indeed, there are signs that the Kuwaitis are beginning to expand their investments abroad.

Earlier this month, for example, Kuwait Petroleum Corp. signed a $6-million joint venture with AFOR, a gas station chain in Hungary, said Michael Georgy of the MidEast Report, a New York-based newsletter. Talks are also said to be under way for a $100-million Kuwaiti investment into a Hungarian oil refinery.

“It’s the first sign that they’re interested in Eastern Europe,” Georgy said. “The Kuwaitis are concerned about their refineries, that they won’t survive the war. At the same time, Hungary is looking for long-term oil suppliers after cuts in supplies from the Soviet Union.”

Georgy also said the Kuwaitis are exploring investment possibilities in Syria. In December, the Kuwaitis loaned $105 million to finance a sanitation project in Damascus, and other projects are under discussion. Also, the Kuwaiti government, through the Kuwait Investment Office, recently agreed to lend the Soviet government $1 billion.

When Iraq invaded the oil-rich emirate on Aug 2., a long list of nations froze Kuwait’s assets. The actions were designed to protect Kuwait’s billions from looting by Iraqi President Saddam Hussein, but they also prevented Kuwait-owned companies around the globe from meeting payrolls and paying suppliers.

Some holdings were jettisoned after the freeze in order to meet the citizenry’s immediate needs and to operate the government. But sources estimate that private and public Kuwaiti assets held abroad total close to $130 billion, with the investment office’s share of that at between $90 billion and $100 billion.

Although continuing investment is important to the Kuwaiti portfolio, few Kuwaiti nationals lose sight of the ultimate goal: Returning to their homeland, reuniting with their families and rebuilding their country, a $20-billion to $40-billion task.

“The hardship of being here is that we have no information about our families in Kuwait,” said Mohammed Sadeqi, a mechanical engineer who helped found London’s Assn. to Free Kuwait. “They suffered when Hussein’s forces came into our country and they are suffering now. It is our country and we want to go back and rebuild it.”

KUWAITI INVESTMENT IN THE U.S.

In 1989, Kuwait was the eleventh-largest foreign investor in the United States. Britain was No. 1. These figures only include those investments in which Kuwaiti companies or the government owned a 10% or larger share in a U.S. company, also known as “direct investment.” Most Kuwaiti investments are below the amount required for federal disclosure. 1980: $335,000,000 1981: $2,994,000,000 1982: $3,567,000,000 1983: $3,606,000,000 1984: $4,333,000,000 1985: $3,968,000,000 1986: $3,771,000,000 1987: $3,919,000,000 1988: $3,852,000,000 1989: $4,197,000,000 COMPANIES WITH HEAVY KUWAITI INVESTMENT

COMPANY BUSINESS OWNERSHIP VALUE Santa Fe International Oil exploration 100% $2.5 billion Georgetown Industries Conglomerate 92% $850 million Galleria Dallas & Houston Hotels/malls 30%-70% $500 million Phoenician Resort Hotel 49% $200 million Atlanta Hilton Hotel 100% $185 million Great Western Resources Oil 29.8% $100 million

Source: Bureau of Economic Analysis, U.S. Department of Commerce

Contributing to this report were Times staff writers Douglas Frantz in Saudi Arabia, Michael Ross and researcher Max Rodenbeck in Cairo, Jesus Sanchez in Los Angeles and William Tuohy and correspondent Jeff Kaye in London.