Dubai's house of sand crumbles

STOCK MARKETS and the world financial system have been rocked by the request by investment corporation 'Dubai World', the wholly-owned subsidiary of the Gulf state of Dubai, for a six month moratorium on the repayment of $3.5 billion of loans.

Kevin Parslow

The corporation, thought to owe at least $59 billion of Dubai's total $80 billion of debt, has been financing the rapid expansion of the Middle East emirate by borrowing heavily from banks and the bond markets.

Its real estate developments - built by exploited migrant labour - have attracted rich and famous investors from all over the world, including footballer David Beckham. But Dubai's development has literally and metaphorically been built on sand!

Not blessed with oil wealth like its sister emirate Abu Dhabi, Dubai has relied on the expansion of the property, finance and service industries to repay the debts. But the world recession has severely hit income from these sources, making repayment of the loans much more difficult.

Exacerbating the nervousness of the world markets was the Eid holiday which immediately followed the announcement of the default, which closed the Dubai (and other Middle Eastern) financial markets for four days. When they reopened on 30 November, the Dubai and Abu Dhabi stock markets fell deeply as well, following on from the world markets. Now the world markets are examining the repercussions of this default.

Dubai World's debts, as the Financial Times pointed out, pale in comparison to the liabilities of Leh-mann Brothers at $613 billion, for example. But the financial markets thought (more likely hoped), that the worst of the credit crunch was over. UK banks, including the government bailed out RBS, are exposed to Dubai's debts.

Now the hunt is on for more 'skeletons in the cupboard'; likely candidates for investigation include Greece and Ireland, both of whose governments now have huge budget deficits, are or will be making huge cuts in public expenditure.

Further crises

Greece's budget deficit will rise to 12.7% of gross domestic product this year and Ireland's workers have already protested and taken strike action against the sacrifices the capitalists want them to make to pay for the bosses' crisis.

Both Greece and Ireland are in even tighter positions because they cannot manipulate their currencies independently to gain breathing space as both are in the euro zone.

This and further crises in the financial markets will make the possibility of a 'double-dip' world recession much more likely, although for workers, recession has never gone away. If banks tighten still further their lending criteria (already extremely strict), then companies and governments will not gain access to finance.

This means more hardships for the working class internationally unless we fight back. One of our demands should be the nationalisation of the banks and finance industry under workers' control and management to protect the working class from the ravages of the world's money grabbers.