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Dubai Reels Under Self-Made Crisis

The desert mini-state finds that it has borrowed and spent too much and can’t pay back now

Since the financial crisis began two years ago, there have been few events that have been hyped as far beyond their real significance as Dubai World’s default on its debts. Stock markets around the world retreated, there was dark talk about a return to last year’s crisis days and analysts warned that this could lead to a wave of sovereign defaults that would ‘ripple across the world’. 

Regardless of the vividness of this tsunami-like image, all that has happened is that a real estate company that had made a specialty of ludicrously grandiose projects (some of which could have stepped straight from the pages of The Onion) has discovered that it can’t pay its debts. There are a lot of companies around the world that have borrowed and made stupid investments. Generally, some sort of a value is recoverable out of many such projects. However, Dubai World is in a league of its own because it seems to have used most of its borrowings to sink big stones into the sea and then cover them with sand.

But you already knew that, didn’t you? There’s no surprise in this and no deeper significance either. The fact that Dubai and its corporate personifications were in deep trouble was well-known. The only news here is that Abu Dhabi won’t bail out Dubai. Or perhaps, the ruler of Abu Dhabi will extract something before he bails out his Dubai cousins. Or something like that. Unless you have some special interest in knowing the arcana of intra-UAE politics, there shouldn’t be anything to interest you in the Dubai soap opera. At the end of the day, this is just another morality tale about borrowing too much money and putting it to uses that have dubious returns. We’ve seen this story repeated at every level from individuals, to corporates, to countries.

The sad part is that by over-reaching itself during the last few years, Dubai has actually harmed the very useful role it plays in the region. Dubai was coming along nicely not just as a centre of trade and transport, but as a relatively relaxed, liberal and safe haven in a region that is generally full of dysfunctional countries. And then, the megalomaniac property dealers took over. I have a feeling that if Dubai escapes some kind of a political or social upheaval then the current troubles may actually play a positive role. It’s better to deflate a bubble than to continue pretending that it doesn’t exist.

About the only real shock would be if turns out that Abu Dhabi is incapable (instead of just pretending to be unwilling) of rescuing Dubai. That would be a whole different story.