The big news today is that Dubai World, the big property conglomerate with many prestigious and some world famous developments under their belt, has requested its creditors to allow it an additional six months to pay a debt of $3.5 billion, which was due next month. The news immediately undermined the stocks of British banks, which were showing signs of recovery, and pulled the major European stock markets down. The impact is more severe because this debt deferment request also includes Nakheel's debts, a Dubai World subsidiary and the one which actually did some fascinating projects; no one was expecting that Nakheel will default as well. Besides, there are several state-backed companies which are defaulting or are near default, which is undermining the credit rating of Dubai's sovereign debt itself. This will limit the state's ability to raise money and bail the troubled companies out. So, suddenly, we see a trouble in the horizon; just when it seemed that we are on the path of recovery.
Dubai was always a bubble. It built a neo-gilded age capitalism, based on wildly speculative property projects. While it lasted, it was speculators' heaven, and properties got 'flipped', sold, multiple times even before they were built. All fuelled by debt - almost all based on cheap money flowing in Europe and America, and subsistence labour extracted out of poor Asian countries. The problem is that most of properties were being bought not to be lived in, but as investments, which is the respectable word for speculation. If one needed to see what is wrong with Capitalism, one visit to Dubai would have been enough: It was rent capitalism at its best.
Now, we are at the payback time. Dubai's companies will have to pay back or renew $60 billion debt in the next 12 to 18 months, and that is a big headache. Capital is fleeing Dubai. Despite the common perception, Dubai has no significant oil wealth and is a pure services economy. So, the credit rating downgrade is lethal, this will make speculators run immediately and getting people to refinance these debts increasingly difficult. If this continues, we shall suddenly see the next chapter of Great Recession - capitalism's ugly underbelly - unfolding in front of our eyes.
Almost the only way for Dubai to save itself is to secure loans from a bigger, oil rich neighbour. Almost everyone guessed that Abu Dhabi can't let Dubai fail, as they are part of the same Emirates federation and share the same currency. Abu Dhabi is cash rich with their oil wealth, and is much less leveraged. But recent rumours suggested rifts between two ruling families, including a tussle on the Emirates Airlines shares. Emirates is possibly the best things that happened in Dubai over the last decade, a professional airline with a convenient hub right in the middle of Asia, Europe and Africa. If Dubai had one advantage, it was its geographic location; this was leveraged by Emirates to the best possible extent. In contrast, Abu Dhabi's success with its own Etihad was fairly limited, and talk of merger was one the air. This did not happen, as personalities came into play, perhaps. Unfortunately for Dubai, the bigger, wealthier neighbour is actually their best chance at this time.
The others who could bail them out, and will possibly still bail them out, are Kuwaitis and Saudis. Kuwaitis already have a lot of investment in Dubai and they may be forced to cover their tracks. Saudis have less at stake, and they were royally miffed last year when Dubai bid to get the proposed Arab monetary union headquartered in Dubai. But, any further meltdown of Dubai may affect the entire region and even undermine the political influence of the Sauds. So, their hand may also be forced now to lend money and restore confidence.
But, the point is, this will still spoil the party. At a time when investor confidence was just about coming back, an ugly bailout in the Middle East will shake the banks and upset the fragile European recovery. Joblessness will spread in Asian economies, as migrant labourers are sent home and this will fuel political turmoil in many of these countries. The Dubai flu will soon become a worldwide phenomenon.
Dominic Strauss-Kahn, the head of IMF, recently talked about the huge exposure the banks still have to leveraged assets and how we may all face a relapse to credit crisis soon. Just when it looked that the combined effort of World governments managed to save embattled economies like Iceland, Ireland and the East European ones, Dubai's troubles are a clear reminder that we are not out of the woods yet. We also have to remember that such economic troubles always have a domino effect, and it only takes a few hours for one country's trouble to spread into a whole region. We know Dubai's story is more or less over, but the bigger question - whether this can be contained in Dubai or does it have to invariably spread over a larger space - will only be answered in the next 8 to 12 weeks. The problem is that the energy to solve such crisis is at a all time low now. Gordon Brown, who took the lead when the crisis hit us, looks battered, unloved and ready to retire. One almost misses the naivety and dumbness of the Bush team; Obama is already so deep into crisis of his own making that he can hardly focus on anything else. Everyone else seems to have their hands full and looking at bailouts themselves. So, Dubai's troubles may spin out of control quite quickly and bring a lot of people down with it.
Popular posts from this blog
A friend has recently forwarded me a quote from Lord Macaulay's speech in the British Parliament on 2nd February 1835. I reproduce the quote below: "I have traveled across the length and breadth of India and I have not seen one person who is a beggar, who is a thief. Such wealth I have seen in this country, such high moral values, people of such calibre, that I do not think we would ever conquer this country, unless we break the very backbone of this nation, which is her spiritual and cultural heritage, and, therefore, I propose that we replace her old and ancient education system, her culture, for if the Indians think that all that is foreign and English is good and greater than their own, they will lose their self-esteem, their native self-culture and they will become what we want them, a truly dominated nation." The email requested me to forward me to every indian I know. I was tempted, but there were two oddities about this quote. First, the language, which
Introduction : The Business of Gift Giving Business gift giving has always been common and contentious at the same time. Business gifts are usually seen as an ‘advertising, sales promotion and marketing communication medium’ (Cooper et al , 1991). Arunthanes et al (1994) points out that such gifting is practised usually for three reasons: (a) in appreciation for past client relationships, placing a new order, referrals to other clients, etc.; (b) in the hopes of creating a positive, first impression which might help to establish an initial business relationship; and (c) giving may be perceived as a quid Pro quo (i.e. returning a favour or expecting a favour in return for something). The practitioners of gift-giving generally argue that doing business is often an aggregation of personal interactions and relationships, and gift-giving should be seen as a natural way of maintaining and enhancing these relationships. ‘Business gifts, especially one given in the course of the festive s
Buzzwords have disadvantages. Right now, experiential learning is one, and that means we put the label on everything and it stops to mean anything. Also, this means reasonable conversation about experiential learning becomes difficult - at times such as this, either you preach experiential learning or you are traditional, antiquarian and hopelessly out of touch. But, overlooking the limitations of experiential learning can cause big problems. Experiential Learning does many things - putting practice at the heart of learning is an important paradigm shift - but not everything, and it is important to be aware what it does not do. Usually, we equate the terms Project-based Learning (the method) with Experiential Learning (the idea) and Learning from Experience (the ideal), treating them as one and the same and using the terms interchangeably. Any talk about distinctive meaning of these terms is usually seen as pedantic, but really represent very different ideas about education.
Today, Helen Goddard, 26, a highly popular music teacher of a City School for Girls, has been sentenced to 15 months in prison. Her crime was to carry out a year long lesbian affair with one of her pupils, who appeared in the court and admitted that the affair was consensual and it was she who pressured Helen into the affair. For Helen, a bright musician and a devout Chistian, this is an extraordinary lapse of judgement. Also, she was teaching in the £13,000 private girls only school in London. She was surely aware what the consequences of her action will be. The fact that she still could not stop herself tells us that lovers do not always act rationally, something we always knew. There is more in this affair than personal tragedies. For a start, this has all the dramatic elements: a bright, beautiful teacher more in Julia Roberts mould [as in Mona Lisa Smile], a stiff upper lip school [not unlike Wellesley] and a story like Notes On A Scandal with an added twist. Indeed, Helen
In most societies today, making profits are accepted as moral, if not especially praiseworthy. This was not as obvious as it appears today – people used to be embarrassed about making a profit not so long ago. Crazy as it seems today, it is worth thinking why it was so. Profits, as economists will put it, is the reward for risk-taking, for putting a business enterprise together in the pursuit of an objective. In this definition, remember, profits are not what it is commonly understood to be – the gross middle-line towards the bottom – but a figure net of entrepreneur’s earning [wages for his labour], dividends and interests on borrowed capital, and provisions for building and other physical assets [a sort of rent, offsetting what these assets could have earned if leased out]. This pure profit – surplus – accrues to a business as a reward to its organisation, for the act of entrepreneurship itself. Economists were divided on how this surplus comes about. The conventional wisdom was,
Introduction Erna Petri née Kürbs, a farmer’s daughter from Herressen in Thuringia, arrived in Ukraine with her three year old son to join her husband Horst in June 1942. Horst, an SS leader inspired by Nazi ideologue Dr Richard Walter Darré, settled in the plantation of Grzenda, just outside today’s Lviv, to become a German Gentleman-Farmer. Erna saw Horst beating and abusing the workers in the plantation within two days of arriving there, which was, as Horst explained, necessary for establishing authority. Erna joined in enthusiastically, settling into a combination of roles of ‘plantation mistress, prairie Madonna in apron-covered dress lording over slave labourers, infant-carrying, gun-wielding Hausfrau.’  However, there were clear rules in the plantation, and Erna was very much expected to play the woman’s role of being a Cake-and-Coffee hostess. When four Jews were caught in the estate while trying to escape from a transport to a death camp, Horst told Erna and her female
I wrote a note on Kolkata, the city I come from and would always belong to, in July 2010. Since then, the post attracted many visitors and comments, mostly critical, as most people, including those from Kolkata, couldn't see any future for the city. My current effort, some 18 months down the line, is also prompted by a recent article in The Economist, The City That Got Left Behind , which echo the pessimism somewhat. I, at least emotionally, disagree to all the pessimism: After all Kolkata is home and I live in the hope of an eventual return. Indeed, some change has happened since I wrote my earlier post: The geriatric Leftist government that ruled the state for more than 30 years was summarily dispatched, and was replaced by a lumpen-capitalist populist government. Kolkata looked without a future with the clueless leftists at the helm; it now looks without hope. However, apart from bad governance, there is no reason why Kolkata had to be poor and hopeless. It sits right
Introduction: Hastings in the history of Indian Education Whether or not one includes Warren Hastings in the history of Education in India is a matter of perspective. If writing the history of education means writing the history of schools, the impact of Hastings' administration would be quite limited. If anything, the rapid implosion of local rulers in Eastern, Southern and Northern India during Hastings' tenure had meant a bleak period for the indigenous education system, as patronage and funds would have dwindled away for many of them. The Company administration really concerned itself with the schooling of the natives only after 1813, as Nurullah and Naik rightly pointed out ( see my earlier post ) and one can legitimately start the story at this point. However, if history of Education in India is to encompass the transformation of Indian Scholarship, on which foundation the new, colonial, system of Education would be built, the story must start with Warren Hast
The ‘Why’ Question? Adolf Hitler was appointed the German Chancellor by President Von Hindenburg on 30th January 1933. This was an extraordinary turn of events. Previously, President Von Hindenburg consistently refused to appoint Hitler the Chancellor, despite the impressive electoral performance of NSDAP in July 1932, Hitler’s uncompromising demand of the Chancellor’s post and a repeat election in November 1932 which failed to break the deadlock. Explaining his refusal, Hindenburg wrote in a letter on 24th November, “a presidential cabinet led by you would develop necessarily into a party dictatorship with all its consequences for an extraordinary accentuation of the conflicts in the German people.” The question ‘why’ Hitler was appointed Chancellor, despite the President being acutely aware of what might follow, is therefore a significant one. The NSDAP had election successes throughout 1932, and was already the biggest single party in the Reichstag and various Landtags acros
In our age, the only way to be politically correct is to be democratic. This is a post-70s affair - those days, still, some people had alternative ideologies in mind. Those alternate ideas are dead and gone, long discredited, and it seems that we have only one system which can make people happy, free and live longer. So, we have this huge export industry of democracy, and democracy's warriors, which the American security establishment has lately become. The democracy's businessmen, the bond traders, the media barons and the Hollywood types, are feted everywhere. The consensus is deafening and dumbing. It is indeed awkward to ask now - whether democracy is the right system for every society. It indeed should be. Collective wisdom is better than individual autocracy. In societies where democratic elections have been few and far between, the popular vote has demonstrated the extra-ordinary political savvy of the usually disinterested masses. Democracy has proved to be an excell
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.