While some world stock and commodity markets show signs of calming down, jitters remain despite -- or perhaps because of -- official pronouncements issuing forth from the governments of Dubai and the United Arab Emirates concerning the continuing debt crisis in the Persian Gulf emirate.
Conflicting statements leave bankers and investors unsure whether Dubai World, one of the city-state's largest state-owned companies, will proceed with its previously announced request for a timeout on repaying $60 billion in accumulated debts.
As of 2:25 p.m., U.S. stock markets were off slightly after opening higher. The Dow Jones Industrial Average was off 12 points, or 0.9 percent, and the Standard & Poor's 500 index was down 1, or 0.12 percent.
Government officials in Dubai have been sharply critical of Western news media reports on the crisis. Lieutenant General Dhahi Khalfan Tamim, the state's police chief and a key member of the inner circle of its ruler, Sheik Mohammed bin Rashid Al Maktoum, told Dow Jones Newswires today that there was no government debt crisis in Dubai and criticized the news media for confusing the sovereign debt of the government with that of state-owned firms.
After the state-run investment concern announced on Friday that it would seek a six-month moratorium on debt repayments, the UAE central bank in Abu Dhabi issued a statement saying that it would make funds available to back local and international banks operating in the seven-state federation. But it also made clear that it was not issuing a blank check to Dubai investment banks; instead, it said it would evaluate aid to those banks on a case-by-case basis.
As its reserves of oil and gas dwindled, Dubai shifted its economic foundations to trade and tourism, a process that accelerated after the first Persian Gulf War in 1991. Fueled by heavy borrowing, Dubai's investment companies went on a buying and building spree, acquiring stakes in a wide range of businesses, including a Las Vegas casino/entertainment district project, and transforming the Dubai skyline and landscape with artificial islands and supertall skyscrapers like the Burj Dubai. As income from these investments has taken a hit during the global economic downturn, Dubai World and other investment banks have faced a cash crunch, in turn prompting the announcement that sent world markets reeling on Friday.
The threatened default underscores the international nature of the economic and financial crisis. Even though U.S. banks have little exposure to Dubai World debt, their stocks suffered along with those of far more vulnerable European banks in the wake of the announcement.
Other news reports today predict that Dubai World will sell some assets, such as the QE2 cruise ship, to help pay off debts. The reports also speculate that the government of Dubai will set up a bailout program much like the United States did to prevent the collapse of the AIG financial services conglomerate and several large banks.
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