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Dubai Debt Crisis-Is it Casino Capitalism or free enterprise-VRK100-29112009

Dubai Debt Crisis-Is it Casino Capitalism or free enterprise-VRK100-29112009

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RAMA KRISHNA VADLAMUDI, BOMBAY, has excellently researched and well-written this article on Dubai's Debt Crisis, and it received accolades from experts. Why does such a tiny city-state Dubai attract so much attention of the world media last week? This is a baffling question for many investors across the world. Dubai till Thursday was seen as an ‘Oasis of Opportunity’ by many in the world. Dubai encapsulates free-market economy providing excellent living conditions for foreign employees and workers, with seven-star luxury for the rich classes, zero tax rates for businesses, numerous opportunities for the financial markets, offers superb port facilities, and a safe haven for criminals and the like. That was till Thursday, when the Dubai World, an investment arm of the Government of Dubai, had announced that it wanted to postpone its debt obligations by six months. This has come as a rude awakening for investors, who were in a state of lull till last week at their own peril.
This has unnerved financial markets across the world and had ripple effects on Europe, Asia and the US. The delay in payment obligations is seen as equal to debt default by many in the world. As we know, lenders don’t like such nasty surprises. Till last month, the Dubai Sheikh was assuring that all was well there.
RAMA KRISHNA VADLAMUDI, BOMBAY, has excellently researched and well-written this article on Dubai's Debt Crisis, and it received accolades from experts. Why does such a tiny city-state Dubai attract so much attention of the world media last week? This is a baffling question for many investors across the world. Dubai till Thursday was seen as an ‘Oasis of Opportunity’ by many in the world. Dubai encapsulates free-market economy providing excellent living conditions for foreign employees and workers, with seven-star luxury for the rich classes, zero tax rates for businesses, numerous opportunities for the financial markets, offers superb port facilities, and a safe haven for criminals and the like. That was till Thursday, when the Dubai World, an investment arm of the Government of Dubai, had announced that it wanted to postpone its debt obligations by six months. This has come as a rude awakening for investors, who were in a state of lull till last week at their own peril.
This has unnerved financial markets across the world and had ripple effects on Europe, Asia and the US. The delay in payment obligations is seen as equal to debt default by many in the world. As we know, lenders don’t like such nasty surprises. Till last month, the Dubai Sheikh was assuring that all was well there.

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Published by: RamaKrishna Vadlamudi on Nov 29, 2009
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09/14/2011

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Rama Krishna Vadlamudi, BOMBAY www.scribd.com/vrk100 Nov. 29 
th 
, 2009 
Page 1 of 9
DUBAI DEBTCRISIS: Is itcasinocapitalismorfree-marketenterprise?
Is it the end of a dream or isthe sun setting on Dubai?Let us analyse the events, thebackground thereto and theirimpact on markets in generalwith specific reference toIndia.
 
Rama Krishna Vadlamudi November 29th, 2009 
If one word epitomizes the last week’s world events, that is, CRASH. Theweek started with a crash on Tuesday, November 24
th
, in the official homeof the world’s most powerful CEO, that is, US president, Barack Obama.Then we have witnessed another crash following the Dubai desertsandstorm that was on Thursday. And the third was yesterday, in Russia.On Tuesday, Barack Obama hosted a state dinner at the White House forIndia’s Prime Minister. Escaping the scrutiny of Secret Service of the WhiteHouse, a couple gatecrashed into the White House and had a photo opwith Barack Obama and his deputy Joe Biden stunning the world. So, eventhe impregnable White House also seems to be vulnerable to a socialitegatecrashing couple, Tareq and Michaele Salahi from northern Virginia.
 
Rama Krishna Vadlamudi, BOMBAY www.scribd.com/vrk100 Nov. 29 
th 
, 2009 
Page 2 of 9
On Thursday, we heard that Dubai Government wanted to postponerepayment of its debt, through its investment arm-Dubai World, by sixmonths. This has sent shock waves across the world’s markets – stock aswell commodities. The Asian markets have lost between two and five percent. While India’s Sensex crashed by over 950 points on Thursday andFriday, but recovered 400 points during mid-day to lose around 550 pointsin two days and ended at 16,630 on Friday.Yesterday, media flashed news of another crash. This time it was a train inRussia that got derailed after suspected terrorists planted explosives on atrack between Moscow and St. Petersburg. In this crash, more than 40passengers were killed.Three crashes in as many days and what a week it turns out to be! Whilethe other two crashes have no impact on financial markets, it’s with theDubai crash we are most concerned with at this point of time. It seems noone, including the all-powerful and ubiquitous US president, is immunefrom such crashes. And so are, Indians!Let us analyse the events, the background thereto and their impact onmarkets in general with specific reference to India.
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Rama Krishna Vadlamudi, BOMBAY www.scribd.com/vrk100 Nov. 29 
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, 2009 
Page 3 of 9
What triggered the present debt crisis in Dubai? 
Why does such a tiny city-state Dubai attract so much attention of the worldmedia last week? This is a baffling question for many investors across the world.Dubai till Thursday was seen as an ‘Oasis of Opportunity’ by many in the world.Dubai encapsulates free-market economy providing excellent living conditions forforeign employees and workers, with seven-star luxury for the rich classes, zerotax rates for businesses, numerous opportunities for the financial markets, offerssuperb port facilities, and a safe haven for criminals and the like. That was tillThursday, when the Dubai World, an investment arm of the Government ofDubai, had announced that it wanted to postpone its debt obligations by sixmonths. This has come as a rude awakening for investors, who were in a state oflull till last week at their own peril.This has unnerved financial markets across the world and had ripple effects onEurope, Asia and the US. The delay in payment obligations is seen as equal todebt default by many in the world. As we know, lenders don’t like such nastysurprises. Till last month, the Dubai Sheikh was assuring that all was well there.State-owned Dubai World is a holding company having investments in a host ofbusinesses. It has a debt of around USD 60 billion (out of the country’s total debtof USD 80 billion) and it invested heavily in property development across Dubaithrough its subsidiary, Nakheel. The latter is building properties, like, The World,Palm Jumeirah, etc, on the sea. Dubai World, till now, was the mainstay ofDubai’s economy. Dubai does not get much revenue from oil. It depends onfinancial dealings, trade, tourism, property development, etc. It has built itsedifice on debt and now with the credit crunch across the world following globalfinancial meltdown, it is reeling under debt. The property bubble burst at last withprices in Dubai crashing by more than 60 per cent putting an end to rampantspeculation. Dubai attracted international attention for its property developmentand luxury tourism, embodied in seven-star hotels, like the Burj al-Arab.Till now, it was assumed by international investors (may be, naively) that AbuDhabi would rescue Dubai with funding. Abu Dhabi is the richest emirate amongthe seven emirates in the loose federation of the UAE. It funded Dubai to anextent of USD 20 billion in February this year. But, this time, Abu Dhabi is silent.There seem to be some differences between the rulers of Dubai and Abu DhabiKingdom.The crash in property prices in the world following the US sub-prime crisis has itssevere impact on Dubai’s property prices. It is reported in the media that Dubaiused to command double the rates of Mumbai till 2008. But now, it seems, Dubaiproperty prices are much lesser than Mumbai property prices – with HiranandaniGroup in Mumbai claiming that Dubai is attractive for property investment now!

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This article on DUBAI DEBT CRISIS has attracted TOTAL READS of more than 1,000!
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This article on DUBAI DEBT CRISIS has attracted TOTAL READS of more than 1,000!
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This article on DUBAI DEBT CRISIS has attracted TOTAL READS of more than 1,000!
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