Dubai debt problems cast shadow over region

Saturday, November 28, 2009 at 2:53 AM Posted by Beijing News


DUBAI, United Arab Emirates – For years, Dubai seemed unstoppable, an oasis of excess boasting indoor ski slopes and manmade islands, the world's tallest tower and dreams that reached even higher.

Now the bills are coming due, and the emirate's debt problems are tarnishing a place built on borrowed time and money — and threatening to spill into other Gulf Arab nations.

State-owned conglomerate Dubai World's call for a delay in repaying some of the $60 billion it owes creditors will likely make international investors view even more fiscally conservative countries through a lens of uncertainty, analysts say.

The announcement is "impacting everybody in the region — the good and the bad," said John Sfakianakis, chief economist at Saudi-based Banque Saudi Fransi-Credit Agricole Group.

"Right now we're still seeing the impact of this, and the impact will be that everybody is being negatively perceived," Sfakianakis said.

In Dubai and in other Gulf nations, rulers keep tight control over information on their fiscal standing and dealmaking even as they draw in hundreds of billions of investment dollars.

For example, in Saudi Arabia, the Arab world's largest economy, few were aware of the $22 billion debt crunch confronting two of the kingdom's largest privately held conglomerates earlier this year. The news filtered out as the companies fought each other in court, with one accusing the other of fraud.

While international investors were once willing to gamble on Gulf countries, largely because of their oil wealth, the global financial meltdown made them less willing to take risks. The Dubai crisis will only heighten those concerns, analysts say.

"Foreign investors will sharply divide the way they recognize investment opportunities in the Gulf based on which countries have oil and which don't," said Simon Henderson, a Gulf energy specialist at the Washington Institute for Near East Policy.

Unlike Saudi Arabia, Qatar or even Dubai's neighboring emirate, Abu Dhabi, Dubai lacks oil wealth. The government-backed entities known as Dubai Inc. tapped credit markets to engineer the city-state's spectacular growth.

Over the past decade, the tiny emirate, one of seven that make up the United Arab Emirates, transformed itself into a regional financial hub, a magnet for tourists and foreign workers.

It constructed high-rises with stellar Persian Gulf views and an indoor ski slope, and offered a freewheeling lifestyle frowned upon elsewhere in the UAE, as well as the region. A manmade island shaped like a palm frond beckoned. Dubai boldly built the world's tallest skyscraper, Burj Dubai, set to open in January.

The global credit crisis derailed the dream. Property prices have plunged by 50 percent since last year. Projects were canceled, and expatriate workers left en masse. Today, buildings sit unfinished, apartments unsold or empty.

Dubai World's announcement that it was seeking at least a six-month delay in paying back its debt sent shock waves around the world Friday. Oil prices dived to near $74 per barrel, and Asian markets tumbled for the second consecutive day. In the U.S., the Dow Jones industrials lost more than 150 points.

Dubai's overall debt load is seen as at least $80 billion, underscoring how grave Dubai World's announcement was for the emirate's financial health.

Later comments by one of the emirate's top financial officials that the call for a delay was a "sensible business decision" and "carefully planned" did little to mitigate the damage.

Henderson said it was "an extraordinarily arrogant decision," made public on the eve of Thanksgiving in the U.S. and just before a three-day Islamic feast.

AP Business Writer Tarek El-Tablawy contributed to this report from Cairo.

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