Saturday, December 5, 2009

The Dubai Debacle

The Dubai debacle is spooking a lot of people. Given that the world is still mired in economic infirmity – this new development is scary.

Actually this came about because the city-state declared their intention to re-structure their largest corporate entity, Dubai World and announced a six-month standstill on the group’s debts. Dubai World is the crown jewel of Dubai’s economy; a global-spanning ports and transportation group and spearheading ambitious real-estate and infrastructure projects at home and abroad. Remember Palm Jumeirah, the emirate’s iconic palm-tree-shaped island, packed with luxury villas and opulent hotels? The company that built it is Nakheel, the real-estate subsidiary of Dubai World.

This surprise move scared the daylights out of investors and severely sapped whatever confidence they had in Dubai’s ability to pay down their massive debt load, sharply increasing the price of insuring against a default. There is genuine concern because this represented the most significant fallout so far in the city-state’s yearlong economic crisis triggered by the collapse in their once-booming real-estate sector in late 2008. In an October 2009 report, Standard & Poor’s estimated Dubai World could be responsible for as much as 50% of Dubai’s total government- and corporate-debt load of some $80-$90 billion (The Wall Street Journal, November 26, 2009, p 18). This is all very alarming.

“Many countries, including Malaysia, see 2010 as the time when the global economy will improve but, with the new episode, we have to wait and see first,” Muhyiddin Yassin, Deputy Prime Minister had cautiously declared on December 01, 2009 itself (Webpage, posted December 02, 2009).

But Nor Mohamed, Minister in the Prime Minister’s Department was bold in his assessment; he had confidently said that “Malaysia is unlikely to be hurt by the Dubai debt crisis” (Webpage, posted December 04, 2009).

When Malaysian ministers are quick to give their opinions, I begin to worry. Most times, they are clueless about these weighty matters. After all, we know that stupidity thrives in the Malaysian Cabinet.

Even if we are spared, we may, still, be indirectly affected should the world's financial centers like London and New York be impacted by the Dubai debt fallout. But we already know that, right? Meanwhile, we can only wait and see...

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