Fresh off last year's credit crisis, a looming Dubai debt problem invokes memories of the collapse of banks and other financial institutions from 2008, and earlier this year as well. If Dubai were to default, the global recovery from the recession could come to a complete halt.
Since the recession began last year, Dubai;s ruler, Sheik Mohammed bin Rashid Al-Maktoum, has continually dismissed concerns over the city-state's liquidity. In fact, every time he was asked about Dubai's debt, he confidently assured the questioners of the nation's finances. In a rare meeting that took place two months ago, Al-Maktoum stated that "we are all right" and "we are not worried," though without any further details.
However, in February, Dubai raised $10 billion in with a bond sale to the United Arab Emirates central bank, which is based in Abu Dhabi. The deal was seen by by many as a bailout of Dubai by Abu Dhabi. It was part of a $20 billion bond program which, at the time, helped Dubai meet its debt obligations.
European markets fell more than 3 percent Thursday. However, turned higher after an early dip on Friday. In afternoon trading, Britain's FTSE 100 rose 0.2 percent, Germany's DAX index rose 0.3 percent and France's CAC-40 advanced 0.5 percent. Asia showed a negative view of things, however, with Japan's Nikkei stock average dropping 3.2 percent, while Hong Kong's Hang Seng index fell 4.8 percent. Meanwhile, South Korea's benchmark index dropped 4.7 percent.
In the first hour of trading, the Dow Jones industrial average fell 174.35, or 1.7 percent, to $10,290.05. Meanwhile, the tech-heavy NASDAQ dropped 41.77, or 1.9 percent, to $2,134.28, and the broader Standard & Poor's 500 index fell 22.58, or 2 percent, to 1,088.05. Trading had been expected to be light, typical of Black Friday.
There has been fear that Dubai has overextended itself in recent times, riding the wave of the global boom which deflated last year. Some have noted that Dubai's "Las Vegas in the Middle East" attitude over a long period, as once peak oil hits and the Middle East wealth "dries up," that area of the world will be left high and dry.
Written by Michael Santo
HULIQ.com
Posted November 27th, 2009 by Michael Santo
