Dubai has been on a Downward Course Following the Foreclosure Crisis in America
Ever since the exploding of theforeclosure crisis in America, Dubai has been sailing downward. But the recent trouble in Dubai is making interested parties uncomfortable. The Dubai Strategic Plan envisages a growth averaging 11% annually right up till 2015. In the first week of November, Sheikh Mohammed bin Rashid al-Maktoum, the ruler and prime minister of Dubai, was at a press conference. At the conference, the esteemed minister stood up and burst out in English saying that, “I want to tell those people who nag about Dubai and Abu Dhabi to shut up.” He also claimed to be proud of the Dubai World and its “long term commercial success”. He felt that the worst days of financial troubles were over.
Wishful thinking does not always translate into reality, however. On November 26th, a couple of weeks after this courageous statement, Dubai World declared that it would freeze its debts of $15 billion repayments due on $59 billion on external loans till May of the following year. It took many by surprise on the eve of the great Muslim festival of Bakrid as well as others in international markets.
The sub-prime crisis has opened the eyes of many because the disaster is linked not only to banks. It has been peddling toxic loans to customers mainly due to international banking and financial links. Thus, the news has raised concern in many European and Asian financial circles, particularly because these groups lend money to Dubai World.
Officially, the sovereign debt of UAE is $80 billion. However, many experts believe that it is considerably more – perhaps double that amount. Major European banks are deeply involved. The Wall Street Journal notes that only European banks could be having $84 billion at stake. Banks in the United Kingdom (HSBC, Standard Chartered, Barclays and ABN Amro) have till now had the biggest exposure to the crisis; their debt in total amounts to $49.5 billion. French and also German banks are not far behind.
The latest attack to the financial structure came when the announcement was made when Nakheel Properties would try to redo its bond terms. It meant that hedge funds would be seriously affected. Much of the irresponsibility would fall on the hedge funds as well as the firm that issued them. However the players in the game were confident that they would be bailed out – as usual. The debts were taken to be quasi-sovereign.
The past precedents have created the expectations that the capitalist economy would guarantee compensation for losses. The idea is catching on in other parts of the world, as well. This, unfortunately, has led to major economic downturns in countries.
