Dubai in deep waters

 

 

Arindam Chaudhuri has made a perfect analyses in the editorial "The world needs Dubai!"(TSI, Dec 7-13 ). The Dubai debt crisis is not a result of any overnight occurrence, but has been something that was brewing over the years. The answer lies in the growth model, which Dubai made for itself long back. It can be said that such are the pitfalls of state controlled capitalism as what was real yesterday and could turn out to be no more than a mirage today. Dubai World that used to call itself the flag-bearer in global investments and boasted that the Sun never sets on Dubai World has burst like a bubble. Dubai borrowed heavily to build up a non-oil economy based on property, trade and tourism, building up a stock of debt estimated at $80 billion, comfortably in excess of national income. The sheer size and exuberance of its property boom was always unsustainable. Over the past decade it hugely expanded, betting on its future as a location for the high end real estate. It was the epitome of the cheap credit property boom, with developers using inexpensive loans to finance grandiose building projects. Its plan to become a centre of finance and tourism pulled in millionaires, who were enticed by the property on offer and rapidly rising prices, which fuelled the boom further. But now Dubai World has 70 creditors including some of the banks that escaped from the last year’s meltdown, like HSBC, Standard Chartered as well as RBS and Lloyds Banking, who could face writedowns on their debt. There are now fears that Dubai might be forced into a fire-sale of assets, which would push asset values down further. The quick evaporation of Dubai’s economic standing revived concerns among traders about the vulnerabilities of markets in places like Indonesia, Brazil, India and China. The debt crisis already has rattled investors by rekindling doubts about the vitality of emerging economies. They are also worried over the deterioration of the country’s real estate bubble. Regarding India's concern, the government saying that our economy won’t be affected will be seen as bunkum. Prof Arindam Chaudhuri's conclusion is to be noted that for all selfish reasons, we need Dubai since it has given employment to millions of Indians. In its own way Dubai has stood by the global investors and nations alike. Today, it is everybody's else chance to stand by Dubai.

Dilbag Rai

Chandigarh