The Al Arab Hotel in Dubai. Photo / Supplied
In the years of the boom, Dubai set about building with an ambition that would have made even Ozymandias blush. Artificial islands full of luxury villas, the world's tallest tower, an underwater hotel, even a stone-by-stone recreation of the French city of Lyon - no project was too extravagant, some
would say vulgar, for the construction magnates of the emirate.
But this was a project built on the shifting sands of credit. Foreign capital poured into Dubai as its ruler, Sheikh Mohammed Bin Rashid Al Maktoum, set about turning his nation into the financial, tourist and sporting hub of the Gulf.
In less than a decade, Dubai managed to accumulate foreign liabilities of US$80 billion ($110 billion). Some estimates put it still higher. But last year's financial storm brought that party to an end. Since last autumn, Dubai property prices have fallen by more than half. Hundreds of building projects have been abandoned. Thousands of construction workers and other workers have been laid off. As in many nations that experienced intoxicating booms, the hangover has been especially painful.
And now the spectre of bankruptcy has appeared. Dubai World - a state-owned investment conglomerate that owes investors some US$22b - said this week that it would not be paying back any money to creditors for six months.
This announcement has also sent tremors through global financial markets. Nothing panics investors more that the revelation that what they thought was a safe bet is nothing of the sort. Dubai's creditors had assumed that the kingdom's oil-rich neighbouring states in the United Arab Emirates would never allow Dubai to renege on its liabilities. They had believed the assurances of Sheikh Maktoum that Dubai's debts would be repaid in full. Dubai's receipt of a US$10b loan from the UAE central bank in February was seen as a sign that, despite the downturn, the rescue party would soon be on the way.
But Dubai's sovereign guarantee of investors' money, it would seem, is not made of cast-iron after all. In the end, it does seem likely that Dubai's wealthy neighbours will finance its debts.
- INDEPENDENT
