Everywhere you go people are talking about the $80 billion dollars in debt Dubai recently claimed. When the Sheikh of Dubai came out recently and claimed that the debt had little to do with the government of Dubai, people were a little outraged.
So what now? What does this big ole debt mean for Dubai and its future plans?
The way I see it a couple of things:
First off all the wonderfully large projects that haven't been built are now on a permanent hold. No more artifical lakes, people will have to make do with the boring ole beaches. The Developers of the large projects recently completed like the metro system are now worried about being paid. Some say that they may see a payment in the next five years. If their luck holds out ofcourse.
People in the know say that the government has 12 days to come up with $5 billion big ones. After which they default. Then you get into the politics of being the second largest emirate of 7. Quick hisotry is that the United Arab Emirates is made up of 7 emirates, histroically tribes that came together after the British left to form a country. Each emirate is ruled independantly by a sheikh. Historically Abu Dhabi is the largest and richest emirate, with the biggest oil supply and Dubai its more popular one. Abu Dhabi has the means to pull Dubai out of this whole mess. Trouble is they most likely want control of Dubai's two biggest assests, the infrastucture system (roads etc.) and Emirates, Dubai's financially sound airline. Abu Dhabi could come out of this crises effectively controlling Dubai's finances. Well that's the positive outcome.
The great challenge is the ruler denying the debt has anything to do with the government. A lot of local banks exist because they are in some way tied to the sheikh. Many are set to fold. Which could cause a run on the banks. Too many people out here are used to keeping their money under the bed.
Chances are that Dubai's rulers may be a bit stubborn. And want to get some of the other players in the Middle east to get them out of this one. Then the cultural impacts could be interesting. A decade ago one of the emirates Sharjah was funded by Saudi Arabia, which resulted in woman no longer able to show their bare shoulders and knees, and a crack down on alchol. Hopefully this doesn't happen in Dubai.
They could ofcourse just begin to tax people. But you have to remember that Dubai is built on the wonderful notion, "you give us your personal freedom and we give you a tax free salary"
What happens in the next few weeks may prove to be critical. Dubai's population is 80% emigrants. Who are quite jittery biengs. The worse thing that could happen to Dubai in the short term is for even a quarter of these folks to get panicky and leave. Mass chaos could break out if people decide that they have had enough of all the uncertainty.
Yet I can't help but think, if Dubai could just get through the next couple of years, it will be alright....(perhaps its my naiive side!)