The help came from the Abu Dhabi Government as well as the Central Bank of UAE stepped in at that critical moment with a bailout offer of US$10 billion for the Dubai World which recently got stuck in billions of dollar debt crisis. Out of the US$10 billion, 4.1 was required to look out for the World's necessary and pressing debt responsibility "comprising of Islamic bonds (Sukuk) of Nakheel- the property development arm of the company". The amount was falling short and the bailout came just time. Since this incident Nakheel has met all its promises and come forth in a limited period of time. The other US$5.9 billion was used to pay the trade creditors and the creditors of the Dubai World. Contrary to rumors, this was not an unexpected step; if help was not given to UAE in time then it could have resulted in the disintegration of the economy of Dubai. (Dubai Turmoil).
Liquidity crisis and credit defaults are not new to these Gulf regions however the government of these countries choose to discreetly deal with it and to not wash their dirty laundry in public (Global Insight).
Dubai has never asked for any finances from its neighboring countries. It was reluctant to accept money even from Abu Dhabi for it rescues hoping that the federal government of Dubai would step forward (Global Insight).
In 1998, Saudi Arabia was granted a loan from Abu Dhabi to save it from a liquidity crisis.
The bailout given by Abu Dhabi was like a "band aid" for Dubai's broken down economy. Abu Dhabi has a significant place in the UAE. Unlike Dubai, who lacks oil reserves, Abu Dhabi is rich in oil reserves as well as trade and real estate.
The Independent stated that the Dubai crisis is "containable" and that financial support should come from Dubai's rich neighbor Abu Dhabi and from "the Gulf Cooperation Council that is dominated by Saudi Arabia" and from the International Monetary Fund. The only problem occurring is that will other countries be willing to put in money to this drowning city especially if they realized about its less oil reserves. If there is no bailout, the interests will increase and then there will be less help and more pressure on the Gulf Cooperation and Abu Dhabi.
At present all are looking towards Abu Dhabi, including the Gulf Countries, to solve the Dubai crisis. Abu Dhabi is caught in between as the most endowed emirate to rescue Dubai from its misery. However Abu Dhabi has insisted that it will not take any action hurriedly and wait for the Federal Government to intervene. (Global Insight)
2.5 Future of Dubai:
Thousands of people were lured in to the "year-round sunshine and tax-free lifestyle, the party was finally overâ€. In the month of November 2009, all across the world word spread that Dubai World, 'a conglomerate behind a huge number of commercial and residential buildings', announced for a six month delay in paying the debt it owed. It would ask for a "standstill agreement and an extension in its loan maturities" until May 2010 causing a quiver in the global financial markets all over the world. (Country analysis) It was assumed that it was a default of the government presumably because it had to back the payment of the debt. Although the amount it delayed was not a huge number in comparison to the world assets, it still caused panic.
Several people had different questions in their mind. Will the Dubai crisis bring another economic downturn? Will this be a crisis that will hit other countries and bring it down along with Dubai? Will Dubai ever be able to come out of this crisis to a road of recovery?
Dubai's rich neighbors have millions of barrels of oil hidden away under the sands. Dubai does not have any reserves. Dubai does not have much oil, water or arable land, therefore the situation is very complicated, it is a considered to be the financial, trading and tourist center of the Emirates" expanding in that role. Therefore in matters of economic diversification it is ahead. However financial services can only be expanded by increasing growth in the oil production. As Dubai has nothing else to sell besides very little oil reserves, it is most unlikely to have quick financial growth until it comes up with some other sector resources such as better tourism, increase in the service sector or the financial sector of which there is increase in the multinational corporations within the Middle East. Furthermore, due to negative news in the media, Dubai would find it very difficult to get funds from banks.(GCC)
In a IMF report prepared by a team of authors such as (-----------) it states that on December 14, when a Nakheel 09 Sukuk was about to mature, the Government of Abu Dhabi had chosen this date to extend a hand of help to the Government of Dubai. The crisis that occurred affected at least US$26 billion including some loans and some bonds. The resources or help received by the Government of Abu Dhabi was going to be used to repay the debt of Nakheel 09 completely and on time and to pay the depending creditors, contractors, working capital and the interest charges by the end of April 2010 in understanding with the conditions made by the Dubai World and its creditors.
2.6 Conclusion:
This crisis has ruined the reputation of Dubai as an "economic power house" (Dubai Turmoil). Apparently it is unknown to people as to how Dubai is going to restructure it US$22 billion of Dubai World debts. The other critical matter is how much high value investments submerged in property mostly waiting for foreign demand especially from the West. The emirate should proceed with caution as the future looks bleak and uncertain
An appropriate response is yet to come forth from the Arabs on the crisis; without a set of suggestions on what to learn from the current financial crisis
The UAE is considered as one of the oil rich nations generating a good cash flow, owing to its reserved population base and massive oil resources. The hefty budget surplus achieved have allowed the UAE to collect an ample 'current account balance', held individually by the governments of each emirate and partly by other private organizations. Overall progress has taken place in both social and economic spheres.
The UAE is one of the economies that have used its income which it derives from the natural resources to develop over a short period of time. Human development along with other factors such as 'industrialization, urbanization and modernization' helped in the development of this country. It is clear that the UAE has reached impressive heights in matters of overall development together with a good regard to human development.
