Business Daily from THE HINDU group of publications
Monday, Nov 30, 2009
ePaper | Mobile/PDA Version | Audio | Blogs
Business Daily from THE HINDU group of publications Monday, Nov 30, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Opinion
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Editorial Despair in Dubai The most important factor in the world's favour is that nations and governments are today more prepared for debt defaults than they were a year ago. If the crisis in Dubai that roiled markets towards the close of last week has a lesson it is this: the world still panics at any bad news. No sooner had Dubai World, the emirate's investment company, sought a “standstill” agreement on the repayment of its $59 billion debt that markets around the world reacted as they would to any crisis, while governments and firms with commitments in Dubai scrambled to tote up the collateral damage. But the knee-jerk panic was brief and gave way to a more sobering recognition that the world had emerged, however gingerly, from the biggest financial freeze in 80 years. Property prices in Dubai have suffered steep falls and firms around the world engaged in the country's property boom will undoubtedly have to face up to the consequences of what was probably, and hopefully, the last of the old speculative boom. But the markets will stabilise sooner than later and the world economy will continue on its slow path to recovery. The factors that make both possible will contain the unpleasant effects of Dubai's burst bubble even though that country's dream of becoming the world's financial and tourist hub will have taken a knock. The most important factor in the world's favour is the psychological one; nations and governments are today more prepared for debt defaults than they were a year ago. Dubai is not Iceland; it has a greater capacity to meet debt obligations with resources that have been built over decades of pioneering business initiatives. Preparedness means that governments around the world will factor in the likely impact of the emirate's problems and continue to back their national economies with inexpensive liquidity. To the extent that the US and EU continue their current policies, the financial system will be assured of enough liquidity and, in the bargain, emerging economies will continue to get the funds to shore up their equity markets. The US Fed's intention to continue its near-zero interest rate for an “extended period” and the drop in the dollar versus the yen, to the lowest parity in 25 years, will inadvertently keep emerging equity markets robust for a while. India will not be able to rule out some damage; remittances may drop and realty firms may take a hit as will some banks as the region's business levels drop. But India's overall economic interests lie further West and so long as governments there and elsewhere lend a helping hand, the world economy will be able to breathe more easily. RBI to ask banks for details of exposure to Dubai World DP World not part of financial rejig, says Dubai Government DP World unlikely to be hit by parent's debt woes More Stories on : Editorial | Financial Institutions | Financial Markets
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