Only yesterday, it seems, Dubai was the glittering jewel of the United Arab Emirates, heralded as the first modern Arabian metropolis, a 21st-century socio-political model, globalization in action. Now the autocratic fiefdom that counts Barneys New York, the Travelodge chain, and a 20 per cent stake in Cirque du Soleil among its holdings boasts a new claim to fame: the most over-hyped, over-the-top asset bubble in history. This week, worldwide markets tumbled amid fresh fears of the global economic fallout from Dubai’s financial mess and the dawning realization that its finances are far more shadowy than ever imagined.
Certainly the government’s annoucement two weeks ago that it couldn’t meet its debt repayments was carefully calculated: it chose the eve of the market-closing U.S. Thanksgiving holiday and the four-day holiday marking Islam’s Eid al-Adha feast to report it had asked creditors for a six-month standstill, and was scrambling to restructure US$26 billion of its total debt of US$59 billion. Then, it announced that debts carried by its tangled web of state-owned companies, among them holding company Dubai World and property developer Nakheel, might not have government backing. Global markets panicked when the UAE, a federation of seven emirates led by oil-rich Abu Dhabi, didn’t rush to bail out its second largest member. Some equilibrium was restored when the UAE set up a lending facility to ensure Dubai’s banks had sufficient capital, and after Abu Dhabi announced it will selectively “pick and choose when and where” to alleviate Dubai’s financial woes.
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