How Worried Should We Be About Dubai?

RGE, here

"....Around $20b of the outstanding debt ($80b) comes due in 2009, including several large syndications like that of Borse Dubai which was having trouble rolling over its $4b loan that expired at the end of February.

.....Unlike some of its neighbours (especially Abu Dhabi) Dubai’s growth was primarily debt financed, making it more vulnerable to the global liquidity crunch and more local liquidity tightening triggered first by the withdrawal of speculative capital and – later by the fall in the oil price. Although Dubai has little oil, it was clearly a petrodollar recycling hub. It accounted for much of the UAE’s external debt stock (some of Abu Dhabi’s state investors like Mubadala and others accounted for the rest ). Dubai based banks likely also accounted for much of the bank lending to the UAE. Moodys vulnerability indicators show that the UAE is among the most vulnerable in the MENA region (if much less vulnerable that Eastern European countries that are being forced to rapidly and painfully adjust.It has been widely assumed that oil-rich Abu Dhabi would come to Dubai’s aid in one way or another, providing the needed capital and solidifying Abu Dhabi’s role within the power structure of the UAE. It seemed likely that federal institutions were taking the upper hand – including the central bank. In fact the first UAE government responses to the financial strains on UAE banks seemed to be evidence enough. But the next stage has been less unclear....

Why hasn’t Abu Dhabi made more funds available to Dubai given that the uncertainty undermines UAE asset quality and the “UAE brand”? One explanation might be politics between the emirates. Reportedly Dubai has not actually asked for funds, perhaps fearing a loss of autonomy....."