Was reaction to Dubai crisis exaggerated?

Dubai Debt

Analysts in Dubai claim the reaction to the emirate's US$80 billion debt crisis has been highly exaggerated.

Dubai's debt woes sent shockwaves across global markets as shares plunged and weak currencies got battered, but all of this has been described as unjustified by the head of Dubai's Department of Finance who said, "The reaction to the (government) decision has been exaggerated and unjustifiable ... and is disproportionate to the volume of Dubai World's debt problem."

Last week Dubai announced that it was seeking a minimum six month freeze on debt repayments of its Dubai World group so it could take time to restructure the debt riddled conglomerate.

More reasons to remain positive

In an effort to play-down fears over the future of the state-owned company Saleh said, "Restructuring is a process applied in many countries, whether through government intervention or by companies."

But the numbers do not lie and activity on the regions exchanges told a different story to the one Saleh is trying to portray. The financial markets in Dubai and neighbouring Abu Dhabi shed 7.3 percent and 8.3 percent, respectively, of their capitalisation on Monday, the first day of trading since the shock debt alert.

But elsewhere there were more reasons for the emirate to remain positive. While shares in the Middle East dropped sharply, Asian shares rebounded on Monday on hopes the Dubai debt crisis would not spread to other financial markets after the UAE's central bank said it would support banks when necessary.

Economic stability still looks some distance away

However, much of the activity is speculative with no-one really knowing where markets will head from here. But with Abu Dhabi letting Dubai sweat over whether the oil-rich emirate will intervene, insisting they will "pick and choose" how to assist its neighbour, economic stability still looks some distance away for Dubai.

Whereas Dubai is widely regarded as a pioneer in modern city development by much of the world, it remains unpopular in some circles within the MENA region as it has been such a significant gateway for western investment and, more importantly, western culture.

This has led to whispers of a conspiracy against Dubai to force it to learn from its mistakes.

Dahi Khalfan, Dubai's powerful police chief, who also heads its government budget committee, said, "The government of Dubai is not facing a debt crisis. It is facing rather an unethical challenge aimed at harming the emirate to prevent it from being a host for capital and business."

If this is the case, recovery for Dubai will be extremely difficult and it will become increasingly difficult to dismiss concerns over its future as "exaggerated."

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