The Dubai director-general of finance said that the Dubai government will not necessarily guarantee Dubai World debts and Dubai World is not part of the government. He further argued that the Dubai World debt is commercial not sovereign.
Dubai World, the conglomerate largely responsible for the emirate's economic boom, triggered a collapse confidence in Dubai last week when it said it would delay repaying its debts, raising fears about the knock-on effects on the fragile global recovery.
Nakheel, wholly owned by Dubai World, which in turn is owned by the Dubai government and ruling family, has an Islamic bond (sukuk) maturing on 14 December 2009.
The first explanatory statement that came out of Dubai government sources after the Dubai World announcement was by Dubai Police Chief, Lieutenant General Dhahi Khalfan Tamim who said that the emirate wasn't facing a debt crisis and that "Dubai as a government doesn't face a debt crisis, but a crisis of unfair competition, that constitutes an offense to the emirate”.
December 1, 2009
Analysis and Forecast: increasing risk
The reaction of Dubai government sources after the announcement of the Dubai World debt standstill has only contributed to further shaking the confidence in the way the emirate’s economy is run.
Although it may be argued that the Dubai World debt is commercial, even if the entity is wholly state-owned, such distinction between commercial and sovereign debt does not apply in situations like Dubai’s. Political Capital has warned earlier in the year about the risk of unclear distinction between public and private businesses and the case of Dubai World is an ample example. The economic boom of Dubai would have been very different had Dubai World not monopolized large sectors of the economy. In other words, Dubai World is largely responsible for the economic boom Dubai has enjoyed. Dubai’s economic diversification efforts hinged on Dubai World and its entities.
The unusual intervention by the Dubai Police Chief in an economic situation also sends many wrong messages, especially that statements and announcements are tightly controlled and censored. The fact that the Police Chief had to comment on an economic matter of such importance reflects a lack of confidence in other members of the government who may be more capable of commenting on economic matters. Even if this was used as a way of promoting Lt Gen Khalfan’s position in future Dubai politics, it reflects a blanket vote of no-confidence in the members of the Dubai governments.