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Journalism of Courage
Dubai,we are told,is an oasis. Except,of course,it is not. Dubai has no real,natural rivers though,for all we know,someone built a gold-lined canal recently and it definitely has no oases. Dubai is an articulation in steel and glass of a triumphant artificiality,a place where the real can blur into the imagined six times before breakfast. Another myth: Dubai has oil. Sure,theres oil money sitting around: but it isnt because Dubai itself has oil. Instead,it has turned itself into a receptacle for its neighbours petroleum dollars,offering them a spectacular destination in return. Oh,and latterly,it has wanted to be something else: a giant,leveraged,financial instrument of a country,betting all its reserves on its own value and on continued good times elsewhere.
That has come crashing down now. Dubai World,a holding company for the city-states government essentially a sovereign wealth fund,and one of the worlds largest has asked its creditors for six more months to meet its obligations. A debt standstill may not amount to a sovereign default,the worst thing that can happen to an economy,but it comes pretty close. The revelation of Dubai Worlds inability to pay puts the focus squarely on the emirates tattered finances: it owes at least 80 billion,probably more if off-balance sheet obligations are tallied. This is because over the past decade it has chosen to expand hugely,betting on its future as a location for the highest of high-end real estate; and has taken on even more debt to invest broadly elsewhere. Most famously in an attempt to take over several US ports,scuttled by the US Congress for security reasons.
Indian concerns,apart from having to watch what happens elsewhere this comes with the territory if you are a biggish economy open to capital flows will centre around the impact on Indian migrants in Dubai. Abu Dhabi has said it will bail out Dubai. A somewhat nervous financial world will be hoping that it will.
