Turkish Column Says `Dubai Crisis` Shows Difference Between `Mirages,` `Reality`

Today`s Zaman Online
Tuesday, December 1, 2009



A view of the tallest tower in the world Burj Dubai in Dubai December 1, 2009.


Column by Ali Bulac: “Dubai, the Desert`s Fake Heaven


According to one claim, Lehman Brothers was selected as the first victim when the US-based global financial crisis initially began.


Normally, the US government, which understands liberal capitalism as an order where gains are individual and damages are collective, should have bailed out Lehman Brothers the way it bailed out Citibank, but that did not happen. The reason for this was that Gulf countries had poured the most money into the firm. When the crisis first struck, Saudi Arabian King Abdullah called it a “conspiracy against Arabs.” Today, we can consider that the king`s comments were not meaningless.


Gulf countries have entered a critical period. Warning bells went off a long time ago for Dubai, if not for every country. The reports are dismal. The government-owned Dubai World, which has a critical share in the construction of the Dubai dream, has $59 million of debt. Dubai`s total debt stands around $80 billion. To be able to overcome its financial crisis, Dubai wants to suspend repayment of its debt until May. According to observers, if Abu Dhabi, from which the Dubai government has requested assistance, does not provide financial support, then Dubai will be destined to collapse. Dubai is desperate. It does not have any other source in its “own model.”


It is actually ironic to use the world “source” for Dubai because it is a model that is based on the dream of building a fake heaven in the middle of the desert. This model, which is not centered on production, industry, agriculture or services, simply presents fantasies that push the limits of human imagination and offers entertainment, vanity and irresponsible consumption. From the perspective of social scientists it is very difficult to describe this settlement area, which emerged from the accumulation of skyscrapers in the middle of the desert, as a “city state.” Historians of civilizations, city planners and philosophers maintain that city-states come from strong traditions and have strong seeds of civilization in their establishment and practices.


But in the desert`s skyscrapers there are no traces of tradition. Dubai has no particular tradition or civilization, and no religious or philosophic teaching. It is a new development; an innovation that mushroomed in the middle of the desert. It is an oasis of flashy display where artificial sites made with concrete, iron, asphalt, synthetics and plastic are rampant. In this oasis, people do not choose to rest in the desert`s steaming heat but instead build ice rinks that go against the grain and fritter away their money in extravagant seven-star hotels.


In addition to the global crisis, the real estate market has also experienced a major downturn in Dubai, where there are giant projects such as manmade islands that were constructed with the support of major foreign finance firms and companies. On the face of it, it may seem as though the crisis in Dubai stemmed from the crack in the financial and real estate markets.


But there is another dimension to the Dubai crisis that actually constitutes the most tragic part of it. After the crisis erupted, Dubai was left with billions of dollars worth of debt. Thousands of immigrants, mainly from South Asia, had rushed to Dubai to work in the construction of major investments. But now these workers are having trouble returning to their native lands. The crisis in Dubai, which was proud of its integration with the world economy, started a chain reaction, causing world markets to fall. While the system in Dubai recalls slavery in ages past, poor working Asians who are stuck in the worst part of the cycle have lost hope for a better future. Finding a job that pays between $75 and $125 a month was enough for these people to consider themselves lucky. Although they were only able to visit their families back home once or twice a year, they were happy because they were able to send remittances to them. But now they are contemplating how they can go back to their countries, never to return.


History books show that if extreme poverty and extreme wealth are intertwined in a place where Muslims dominate, then the social order, such as the spiritual hierarchy, begins to be disrupted. Dubai was the icon of a false heaven, a fake happiness, pirate entertainment and the ascendancy of the nouveau riche in the center of the desert. It was just a mirage, and the crisis has shown once again that there is a difference between mirages and reality.


Wise old men once said sometimes good fortune arises from misfortune. This tragic situation should be a lesson for those who want to compare a city like Istanbul, which has hosted Islamic civilization and imperial empires for 3,000 years, to Dubai.


(Description of Source: Istanbul Today`s Zaman Online in English -- Website of English-language daily published by the Zaman media group, supported by Nurcu Sect leader Fethullah Gulen; URL: http://www.todayszaman.com)


© Compiled and distributed by NTIS, US Dept. of Commerce. All rights reserved.


Some Enlightenment from Dubai Disillusionment
Renmin Ribao
Thursday, December 3, 2009


Article by Li Hongmei: “Some Enlightenment from Dubai Disillusionment”; headline as provided by source


The sweeping credit crunch has ripped through Dubai, A lifelike Arabic fairy tale built on sand, sending the emirate braving bitterly the worsening debt storms to prove to the world that all its ambitious blueprints are more than a fairy land and far from a mirage.


Some snapshots of the Desert Storm: Property, engine of Dubai`s growth and accounted for more than half the economy at its peak and even last year, has run into the sand. House prices plummet by as much as 50%, and are expected to go down a further 20%, leaving Dubai real estate in tatters.


Tourism, 20% of its GDP last year, is now nose-diving. Additionally, multi-billion dollar investments by Dubai`s sovereign wealth funds in foreign assets have also slumped. And the storm never fails to hit the market, which has already shrunk up to 70% from its 2005 highs.


Even worse, the debt of key state-backed companies and government-controlled firms has amounted to $ 80 billion, more than the city state`s GDP. What is more worrisome than numbers is that, perhaps, Dubai will be facing a confidence crunch---- featuring the downcast morale with the burst of economic bubble and the bankruptcy of creating a Muslim capitalist success story.


Now Dubai dream turns sour, but would that sound a wakening alarm to those authorities who are still dreaming of creating a copycat Dubai or pushing ahead Dubai Mode by absolutely resorting to the forceful administrative hand ?


At least, Dubai exists as real as London, New York or Hong Kong, and no one would doubt it is still a great place to study the architecture, although in between the grand skyscrapers is just sand, and gaps to be filled with time and money, both of which are right now wanting to the once manmade oasis on sand. Perhaps, Dubai has a future, much the way as the emerging sun with all its shimmering rays was suddenly shrouded by the darkness of clouds just before showing its first shining beam at the horizon.


Dubai inspired people by turning out a dreamlike world, as if the mysterious island in Jules-Verne`s fiction just came true and to life. Dubai disillusioned people, because in its dreamy and starlit sky, there appeared no trace of dreams released freely and willingly by the numerous dream-loving individuals. If the skyline of such a dream land is totally monopolized by powerful and high-handed dreamers, it will be nothing more than a pipe dream.


Dubai`s undoing may just lie in the fact that the administrators directly act as the chief architect and forerunner defining and leading its economic tides. And those in power failed to realize in time that any flourishing economy must be built on the active and voluntary involvement of hundreds of millions of individuals and a sizable number of market main bodies.


And only when a tussle unfolds within the frame of justice and fairness, and with more interest groups and individuals willingly involved, would the dream for a real common prosperity be possibly fulfilled.


Wealth could be lock up by the “happy few”, but not dreams. If the dream for better is monopolized or disturbed, and if the overflowing abundance in the hands of the elites is established totally at the cost of the others` happiness to seek their own dreams, the showy and luxurious city structure would hardly avert its doomsday.


Lamentably, Dubai Dream goes sour; but still hopefully, it is not a day dream.


(Description of Source: Beijing Renmin Ribao (People`s Daily) in English -- Online English newspaper of the CPC Central Committee; URL: http://english.peopledaily.com.cn)


Compiled and distributed by NTIS, US Dept. of Commerce. All rights reserved.


Dubai Debt Meltdown -- Another Financial Crisis?
Xinhua
Sunday, November 29, 2009



DUBAI, UNITED ARAB EMIRATES - DECEMBER 02: A passenger train passes in front of high rise buildings on December 2, 2009 in Dubai, United Arab Emirates.


BEIJING, Nov. 29 (Xinhua) -- Dubai, an oasis in the Persian Gulf, has woken up to a debt crisis of its state-owned investment flagship Dubai World, a firm known for its slogan -- “The Sun Never Sets on Dubai World.”


The state-owned conglomerate in the United Arab Emirates Wednesday asked for a delay in repaying some of the 60 billion U.S. dollars it owes to creditors, causing panic and concerns across the world.


Has the sun set on Dubai World? Will the crisis hamper the world economic recovery and spill over to the global financial sector? Or will it trigger another economic meltdown?


RISKS: SMALL OR BIG?


Amid fears that Dubai World could delay its massive debt payments and shock waves around the world`s already brittle stock markets, the world leaders played down the troubles and showed their confidence in global economy.


Although Britain comes in forefront with many of its commercial banks exposed to the Gulf emirate`s financial problems, its Prime Minister Gordon Brown was more ready to call it a setback, which he said was “not on the scale of previous problems we have dealt with.”


“The world financial system is stronger now and able to deal with the problems that arise,” he added.


French Prime Minister Francois Fillon said the Gulf had the resources to ensure the world would not sink into a second round of turmoil.


Their words were echoed by Sheikh Ahmed Bin Saeed al Amktoum, chairman of Dubai`s Supreme Fiscal Committee, who said that “the government is spearheading the restructuring of this commercial operation in the full knowledge of how the market would react.”


However, some analysts voiced their concerns over Dubai`s stance to downplay its financial predicament, saying that a lack of details on the crisis would raise concern over the problem.


Likewise, many heavyweight investment institutions also cast doubts on the current default by warning that the Dubai debt might be over 80 billion U.S. dollars. Some observers even dubbed this scenario “financial crisis 2.”


Following the Dubai World`s announcement, Standard & Poor`s downgraded its ratings of several Dubai government-related entities.


A Saudi economist said “it is a very serious and severe problem that is likely to shake up the Gulf financial system as a whole.”


DUBAI VISION: GAINS OR LOSSES


In “My Vision,” a book written by Sheikh Mohammad bin Rashed al-Maktoum, the Dubai ruler depicted his dream that Dubai, always seeking for innovation, would become a world economic center.


But the debt crisis would almost wreck his dream.


With a rapid development drive, Dubai, a tiny emirate, has in recent years transformed itself into a regional financial and tourist center.


Unlike its oil-rich neighbors, Dubai adopted a different path of development, where the skyrocketing buildings and the masses of foreign workers it employs serve as witnesses.


Instead of naming it the beginning of a new financial turmoil, a U.S. consulting company said in its report the latest crisis was an overdue burst of assets bubbles.


Nevertheless, many believed Dubai`s growth mode was still recommendable as it had made a good use of its geological advantages and successfully spurred up its economy.


Some held that such problems were inevitable in Dubai`s economic transformation. Kit Juckes, chief economist of the London-based currency trading group ECU, called it a “one-off bubble” since “nowhere else has there been so much extravagant construction.”


MARKETS: CORRECTION OR EROSION


As consequence of the debt woes, crude oil prices experienced the deepest slump on Friday since January. Meanwhile, property prices in Dubai almost downed by half. Wall Street retreated amid a global sell-off as investors fled risk assets.


Some saw that the market was overheated this year and the debt crisis was just a trigger for market correction.


Mohamed El-Erian, chief executive officer of the U.S. Pacific Investment Management Co., said Friday that the troubles in Dubai served as a catalyst for “overdue correction” in stocks and other risk investment market that has been depending on liquidity injection.


“While many have acknowledged in the last few weeks the growing wedge between market valuations and economic and corporate realities, few have been willing to take their equity exposure down,” El-Erian said.


In tackling the global financial crisis, countries across the world were keeping low interest rates and substantial liquidity in their financial sectors. Nonetheless, property bubbles were simmering behind these seemingly well-performed markets.


The view was supported by Templeton fund manager Mark Mobius, who predicted that the Dubai crisis might trigger a 20-percent stock contraction on emerging markets.


As real estate market accounts for a large part of Dubai`s economy, some observers warned that the crisis could bear large on its economic well-being.


Richard Bove, a veteran banking analyst at the U.S. Rochdale Securities, said that Dubai would probably sell its good real estate at a low price and cause a chain reaction in the whole market.


Figures form the London-based Deutsche Bank showed that house prices, both commercial and residential, have halved since August last year.


Despite Dubai World`s pledge to mitigate the risks for its investors, the losses in its real estate and stock market would make it hard to have the promise delivered.


Analysts from the Bank of America cautioned that if the Dubai crisis spread to other emerging markets, the world economic recovery could see a major setback.


© Compiled and distributed by NTIS, US Dept. of Commerce. All rights reserved.


Indian Editorial Says Fallout of Dubai Financial Crisis `Will` Be `Substantial`
The Pioneer Online
Monday, November 30, 2009



DUBAI, UNITED ARAB EMIRATES - DECEMBER 03: A general view of Dubai Marina on December 3, 2009 in Dubai, United Arab Emirates.


Editorial: “Dubai May Sink Rapidly”


The fallout of the financial crisis in Dubai may be difficult to estimate immediately but will certainly be substantial. Dubai World, the Government-owned investment company and principal promoter of the desert emirate`s recent real estate surge, has defaulted on loan payments. In effect, the Government of Dubai has declared itself as being at the cusp of reneging on a sovereign guarantee. It is expected -- or hoped -- that the neighbouring emirate of Abu Dhabi will bail out Dubai. Nevertheless, the conditions attached to this hypothetical bailout remain unknown. They could have both economic and lifestyle implications, given Dubai is the most permissive city in the Gulf. Dubai has very little oil. It gets its revenue from being the pleasure and financial capital of the Arab world, and the one city where Westerners and expatriates can live a semblance of normal life. In the past decade or so, Dubai sought to reinvent itself as the Singapore of West Asia, as a financial centre, a playground for the global elite and, with sovereign-backed firms such as Dubai World, an investor in companies and markets around the world. Among other things, this led to the creation of a massive real estate bubble. Skyscrapers and dazzling landscapes, even man-made islands, were thrown open to speculators. Celebrities from Richard Branson to Shah Rukh Khan were invited to own designer homes in Dubai. An extravagant sports city, which saw itself as among other things Manchester United`s Asian hub, was built from scratch. The Wall Street financial crisis of 2008 hit Dubai hard. At home, real estate prices crashed; abroad, the value of Dubai`s investments fell sharply. Yet, nobody knew exactly how hard the impact was. This past week, the intensity became apparent. The Dubai Government itself was contemplating bankruptcy.


Adversity will automatically pare down ambition. Dubai`s dreams of becoming the Gulf`s first post-petroleum economy, insulated forever from the energy resource that drives its region, will now be downsized. The wealthy bankers and luxury retail chains that had made the city their habitat will have to look elsewhere or contemplate less business. The job market too will be tempered. Since the earlier oil boom of the 1970s, Dubai has been the South Asian blue collar worker`s city of gold. Two of every five residents are Indians. Exact figures are unavailable but according to some calculations, 25 cents of every dollar sent home by NRIs as remittances comes from Dubai. Kerala will be severely hit. So will Gujarat, which is a big exporter of gems and jewellery to Dubai. The exposure of some Indian banks to projects in Dubai and the investment plans of Dubai-based real estate companies in India -- one of them is building the Commonwealth Games village in Delhi and has already been burnt by the Indian real estate collapse of 2008 -- will also arouse concern.


In the long run, India will probably be less affected than certain other countries that are far more dependent on Dubai and its dollars. Yet, there will be an indirect affect. If Dubai World is forced to liquidate its assets in, say, Europe -- and these are said to be not insignificant -- then the prospect of a distress sale will only drive down prices in those markets. This is not happy news for a global economy that thought the worst was over. Suddenly, 2010 doesn`t look as much of a recovery year as it was being made out to be before the bubble called Dubai burst.


(Description of Source: New Delhi The Pioneer Online in English -- Website of the pro-Bharatiya Janata Party daily, favors nationalistic foreign and economic policies. Circulation for its five editions is approximately 160,000, with its core audience in Lucknow and Delhi; URL: http://www.dailypioneer.com)


© Compiled and distributed by NTIS, US Dept. of Commerce. All rights reserved.






Saudi Editorial Urges Dubai World To Adopt `Far More Open`, Cooperative Approach
Arab News Online
Sunday, November 29, 2009



Workers walk past Burj Dubai, the world`s tallest man-made structure under construction, in the Gulf emirate of Dubai on November 05, 2009.


Editorial: “Dubai`s Problems”


There has already been some unattractive gloating at how Dubai World`s ambitions led it into stormy waters. Some pundits are suddenly claiming that they knew all along that its big plans would lead to trouble.


Yet at the moment what went wrong is the least of the issues that needs to be addressed. There will be time enough to analyze how the problems built until they achieved the level of a crisis on the eve of Eid Al-Adha.


At the moment it is the crisis, not its genesis that must be tackled. There are those in the markets who believe the Dubai repayment delay could be the trigger for a new stage in the international financial crisis, on a par with the US home loan defaults that initiated the financial meltdown.


It would be absurd to pretend that this might not be the case. Enough investors have lost enough money already not to be fearful. And the international banking system, whose folly led the world into financial catastrophe, is clearly highly exposed in Dubai and the wider Gulf.


But by the same token, Dubai`s money troubles do not actually have to be the start of a further collapse of confidence worldwide. Everything depends on how Dubai handles its crisis from here on in, because unfortunately, it is absolutely clear that it did not start off the exercise very well.


Dubai World is not defaulting on its debts -- throwing up its hands and saying it cannot pay them. It is merely deferring repayments for six months. This is a very different option. Indeed, risk analysts in the Gulf had long seen that the company`s ambitious expansion program into luxury resorts, offices and apartments was not generating the expected revenues and the business was eating up its capital. A visionary business plan had collided with the grim reality of a worldwide recession. Dubai World had reportedly been in talks with its banks and other lenders for some time.


Some sort of deal was expected. But it seems very much as if whatever solution that was put on the table by the lenders was unacceptable to the company. Thus it went ahead unilaterally and announced its repayment suspension.


In the world of finance, this is rarely a good tactic. Bankers do not like to be ignored. Dubai World may well escape its current difficulties with this maneuver, but banks have long memories. The company will never receive the same welcome, nor indeed keen loan pricing it has achieved in the past. But what is worse, other borrowers in Dubai and the wider Gulf will be marked down as credit risks because of Dubai World`s behavior.


Returning to the present, it is clear that Dubai is going to have to do a lot better in its PR. Making the announcement before Eid and the US Thanksgiving holiday was a tactical blunder -- postponing market reaction by only a few hours but angering investors anyway.


From now on, to succeed, Dubai World needs to adopt a far more open and cooperative approach to the international markets.


(Description of Source: Jedda Arab News Online in English -- Website of Saudi English-language daily; part of the Saudi Research and Publishing Group which owns Al-Sharq al-Awsat. URL: http://www.arabnews.com)


© Compiled and distributed by NTIS, US Dept. of Commerce. All rights reserved.








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