Global Biz

Dubai ruler's ambition helped brew crisis

(Agencies)
Updated: 2009-12-04 17:00

A view of the tallest tower in the world Burj Dubai in Dubai December 1, 2009. [Agencies]

Taking advantage of cheap credit, developers -- some run by the government and other's closely linked to it -- built soaring skyscrapers and luxury residential compounds on man-made islands at a pace that outstripped real demand.

Despite oversupply, real estate prices soared, in a mirror image of what happened in the United States before the subprime mortgage crisis sent the world into its worst recession in over six decades.

When the global financial crisis hit Dubai, prices collapsed by 50 percent in a year while the cheap funding dried up, meaning other projects either sat unfinished or were scrapped.

Now, as the emirate's largest government-owned conglomerate, Dubai World, reels under the weight of its $60 billion in debts, Mohammed has retreated from the limelight.

Given how intertwined Dubai is with its ruler and members of the Maktoum dynasty, the fallout could create trouble for Mohammed, who must now either hope that the neighboring emirate of Abu Dhabi will step in with some sort of bailout or that creditors will see they have little choice but to agree to restructuring debt.

"It will be very difficult for Sheik Mohammed to survive this one," said Christopher Davidson, an expert in Gulf affairs at Britain's Durham University and author of two books on the Emirates. He said Mohammed "effectively lied to investors" that he had money to back his plans.

The Associated Press e-mailed requests for an interview with Mohammed but they were not answered.

Dubai officials said the city's government will not be responsible for the company's debts and Mohammed has shown little inclination over the past week to address Dubai World's debt problems directly.

When he recently came forward, he accused the media of exaggerating the situation and arguing that the market reaction showed a "lack of understanding of what is going on in Dubai."

The lack of clarity from Dubai's ruling and corporate elite has been evident over the past year, when Dubai became the Gulf region's biggest credit crunch victim.

At a rare meeting with reporters two months ago, Mohammed's answer to a question about Dubai's debt-load was: "I assure you we are all right. ... We are not worried."

By November, he had grown more testy. In a meeting with international investors in November, he switched from Arabic to English to tell naysayers in the media to "shut up."