Businessmen and contractors that fuelled Dubai’s real estate boom are still waiting for their money. And many economic experts believe that the injection of capital by Abu Dhabi will not solve all of its problems.
Dubai is now using US$ 4.1 billion of the US$ 10 billion loan to pay Dubai World’s liabilities; the rest will go to other debtors.
A Dubai World spokesman said the funds would help contractors, but sought to manage expectations given that the restructuring of Dubai World and its two property arms, Nakheel and Limitless, is just starting.
For analysts at National Bank of Kuwait, the Dubai World's debt restructuring could trigger a further 25 to 30 per cent decline during the next six months.
In fact, much of the debt needs to be settled in 2010 and 2011. Altogether, Dubai must repay at least US$ 55 billion in the next three years.
Geopolitically, the rescue plan for Dubai unveiled on Monday gives Abu Dhabi greater sway over Dubai’s affairs and could force Abu Dhabi’s independence-minded leader, Sheikh Mohammed bin Rashid Al Maktoum, back into the fold of the United Arab Emirates.
For many, the sheikh has acted a bit too independently vis-à-vis federal authorities, engaging in reckless financial operations whilst contributing less than 3 per cent to the US$ 12 billion federal budget.
Abu Dhabi’s control could take two forms. First, its emir Sheikh Khalifa bin Zayed Al Nahyan could put a stop to Dubai’s bad financial habits by asserting control over key pieces of Dubai’s corporate empire as compensation for its bailout, pieces like Dubai’s state-owned Emirates Airlines and its port operator, DP World Ltd. Secondly, control could be more political. Abu Dhabi often works in league with Saudi Arabia on foreign policy matters, whilst independent-minded Dubai has favoured instead Ahmadinejad’s Iran, thus gaining large amounts of cash by serving as an embargo-busting trans-shipment point for Iran’s trade.
If US-ally Abu Dhabi does assert its control, Washington could gain a platform from which to exert significant pressure on Iran.