The bursting of the Dubai debt bubble

Published on WSWS, by Alex Messenger, 3 December 2009.

Global markets, thrown into panic following Dubai’s announcement last week of a repayment halt on $59 billion in foreign borrowings, have apparently been calmed by indications that Dubai World, the government’s main holding company, will enter into debt restructuring negotiations with creditor banks and that the central bank of the United Arab Emirates (UEA) will pump extra funds into the local banking system. That step is aimed at reducing the risk of a run on the banks in the UAE and the Gulf area more broadly.

However, the fact that Dubai has decided to take a more co-operative approach towards its creditors does not make the emirate’s situation less serious. In the absence of a bail-out by oil-rich neighbour, Abu Dhabi, Dubai’s debt position is intractable. 

On 25 November, Dubai World announced that it intended to halt repayments on its $59 billion in foreign debt, most of which is owed to European and British banks, including HSBC and the now UK-government owned Royal Bank of Scotland. The borrowings of Dubai World—which owns the emirate’s key real estate and tourism companies as well as, through subsidiary DP World, a global port network—accounts for 40 percent of the borrowings of the Dubai government and the entities it controls …

… Working and living conditions in Dubai are among the worst in the world. Unions are banned, while internal security forces punish dissent and violation of racial segregation rules with violence or deportation. Until recently, workers were paid on average $150 per month, meaning millions in remittances to poor families. Reports from various human rights and labour organisations indicate that thousands of workers in the construction industry have not been paid for months.

Together with the various cheap labor platforms of South East Asia, Dubai demonstrates that a major source of capitalist profitability, including its less industrial and more “financialised” forms, is the compact between finance and feudal, dictatorial, regimes, whose primary service is the suppression of the working class. (full text).

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