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IMF versus Grounds for Optimism


30-05-2011

Angus Taverner

Director- Global Affairs


Tag: economy United Arab Emirates
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The International Monetary Fund has raised an alarm that the UAE could still face threatening debt problems and needs to make clear its longer term fiscal strategy and plans.  Admirable as this advice is, it seems not to have shaken the worlds growing confidence in the countrys ability to cope because of the success it has already shown in its recovery.  
A year and a half ago, many international commentators forecast that Dubai was on the verge of collapse monumental in size. Collectively, they expressed alarm, pessimism and in some quarters, a measure of glee at the distressed economic outlook for the emirate and particularly for the eponymous Dubai World which only a month previously had triggered shock and consternation as it announced a standstill in debt repayments and the need to restructure. Percy Bysshe Shelleys Ozymandias was drafted in from school poetry collections as the most apt metaphor for Dubais travails. Some took this prospect literallypredicting the city of Dubai would physically crumble away, disappearing back into the desert sand as swiftly as it had come.
Taking a more sanguine view, many economic analysts observed that DW had been thought to fall firmly into the category of too big to fail and consequently predicted that the cavalry from Abu Dhabi would be forced to ride in to save the day though the cost would effectively be a takeover of Dubai.  This judgement was given further impetus when the Burj Dubai was renamed the Burj Khalifa on the night of its opening January.
Today, the mood is altogether more upbeat. Importantly, there is broad acceptance that DWs debt restructuring process is complete, even if a few loose ends such as Nakheel remain to be tidied away. Moreover, a similar process of restructuring for Dubai Holding and DIC seems to have been accepted without demure, and certainly without attracting the levels of near media hysteria which characterised so much of the reporting of DWs ills.
It is also important to acknowledge the leadership of Dubais robustness in addressing the challenges it faced. Following initial criticism, it seems fair to suggest that observers have been increasingly impressed by the rigour and indeed ruthlessness with which Dubais Ruler, HH Sheikh Mohammed bin Rashid al Maktoum set about restructuring his team and addressing Dubais economic restructuring. Close personal friendships, such as Sultan bin Sulayem, were set aside as a new team was assembled. In particular, the authority of the Dubai Supreme Fiscal Committee has clearly impressed people, and elevated the standing of its taut membership: Sheikh Ahmed bin Saeed al Maktoum, Mohammed al Shaibani and Ahmed Humaid al Tayer. It seems that this tough-minded approach has had the desired effect. Confidence in Dubai is returning.
As ever, perceptions are important and the appointment of Sheikh Ahmed bin Saeed al Maktoum as Chairman of DW was widely interpreted as sending two important messages to the international investment community. First, in the future Dubai seems likely to adopt a more considered investment and acquisition strategy, perhaps with less emphasis on real estate and more on returning Dubai to its core trading roots. Secondly, DW is now under the direction of Dubais most senior and respected business leaders.  This seems to have reassured creditors that future debt obligations will be met.  Some express concern that power at the very top of Dubais commercial structure is now concentrated in too few hands leading to an effective monopoly of power which risks stifling innovation, risk taking and a positive investment culture.
Finally, in appointing the same men to so many vital economic and business roles, some observers have suggested that this suggests a paucity of genuine business talent in Dubai that does not send a positive message for the future.
Others would argue this is not the case. Right now, Dubai needs steady and experienced hands on the helm, both to navigate the still choppy waters of a nascent recovery and to reassure the global investment community that not only is Dubai still firmly afloat but is already setting fresh sails and a new direction for the future. Young business talent remains in abundance. For now, experience seems the most prized asset. 
AT  24 May 11

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