Dubai dazzled the world with its extravagance and excess. Now it wants to defer its debts. What went wrong, asks Richard Spencer.
By Richard Spencer
Published: 7:52AM GMT 27 Nov 2009
The brief statement was short but, in the words of one banker, desperate. "Dubai World intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least 30 May 2010."
In a nutshell, the government was asking banks to let two of Dubai's most famous companies hold off on their mortgage payments. Since they are state-owned, the announcement suggested the city itself was in trouble: governments aren't supposed to default on their debts, and when they do – as Argentina did in 2001 – it causes chaos around the world.
Yesterday, the creditors didn't know whether to laugh or cry. On the one hand, this is an undoubtedly serious situation. Western banks, and the construction firms that built those castles in the sand, are exposed to serious amounts of money. Dubai's total government owings are officially $80 billion, unofficially twice that, and the cash flow to pay that back is a mystery.
More to the point, confidence had returned to the city's dealings, its companies were rehiring, precisely on the same assumptions that have seen rising property prices in London and rising stock markets everywhere. The crisis was over, meltdown averted, and growth was back.
But if Dubai's revival turns out to be fake, perhaps the rest is, too?
Yesterday, share prices around the world fell as the news was absorbed. One analyst asked whether this was the "new Lehman brothers".
http://www.telegraph.co.uk/news/worldnews/middleeast/dubai/6667851/Is-this-bye-bye-Dubai.html
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