The government of Dubai has taken over its flagship company, Dubai World. The surprising move has caused ‘panic throughout the region, and translated into a selloff in bank stocks in Europe and Asia.’ To top that, ‘the government also aims to delay payments on $60 billion in debt, a request that caused the price of insuring debt in emerging economies to soar.’ Dubai, the oasis of ostentatious wealth in the Middle East, is in trouble.
The shock waves reached stock markets around the world. ‘Investors scrambled to understand the implications of Dubai World’s restructuring and unexpected debt standstill.’ Markets in Europe closed. However, Dubai officially asserted that its move was a “sensible business decision.” According to Sheikh Ahmed bin Saeed al-Maktoum, chairman of the Supreme Fiscal Committee, “While the government understands the concerns of the market and the creditors, it had to intervene because of the need to take decisive action to address its particular debt ¬burden.”
He added that ‘the government had acted in full knowledge of how markets would react’ and said, “We want to ensure resources are deployed … to enhance the businesses of Dubai World Group, build on the restructuring … and ensure long-term commercial success.”
According to some investors, it was the ‘lack of information about the debt standstill, announced on Wednesday’ that was the major reason that caused the ‘wider turmoil.’ Sheikh Ahmed bin Saeed al-Maktoum, however, assured that ‘further information would be given early next week.’
