Dubai Debt Crisis: Implications for Gulf Economies & Global Financial Markets
Suggestions of a technical default on November 26 by UAE-based Dubai World have sent shockwaves through the financial world. Not only are creditworthiness concerns reaching boiling point, but global equity markets, too, seem to initially have gone into panic mode. Business Monitor’s Liz Martins and Terry Alexander discuss the implications of a debt default by Dubai for the region and global financial markets.
November 27th, 2009 at 8:17 pm UTC
My question would revolve around the influence that Saudi Arabia is yielding on the peninsula. UAE has already dropped out of the GCC’s common currency plans. How would this default affect their chances of ever joining the the common currency? Further, is there a chance of a “regional” bailout (i.e. Saudi, Kuwaiti, Qatari governments intervening)? It is hard fo imagine that the GCC countries countenancing a default since it would likely have contagion effects (Argentina-style) on FDI in the region. Also how and if a default could change the government?
What a Thanksgiving! As always, your alacrity and analysis are welcome. Thank you!
December 1st, 2009 at 2:40 pm UTC
Hi Brian. Thanks for your comment. If Abu Dhabi won’t step in to rescue its own sovereign reputation, then I doubt Saudi will want to help out. Don’t forget also that the GCC states have been competing for market share in the financial sector: Bahrain and Qatar both presented credible rivals to Dubai, and Saudi just scored with the GCC central bank (for what that’s worth). Allowing Dubai to fail does hurt the whole region, undoubtedly, but the damage has been done, and Saudi will be focussing its energies on its own problems.
I always think questions about the single currency are something of a red herring – it’s not going to happen for years, and if/when it does, it will be a fairly unexciting event. The UAE I think would always have inclined towards staying out of it, due to the potential need for Dubai’s dominant non-oil sector – tourism, finance, real estate (!) – to stay flexible. This is now more important than ever.
December 6th, 2009 at 2:49 am UTC
Thanks for the response! I figured the risk of contagion was too high to write off, but it really seems a wholly different issue just a week later. Remarkable.