MONEY MATTERS

Dubai has huge debts. The state has borrowed $80 billion to finance construction designed to reinvent it as a centre for finance and tourism. Dubai World, the state’s main holding company, which owns assets ranging from the Palm Islands to the Barneys department store in New York, a stake in Las Vegas casino company MGM Mirage and ports around the world, owes some $59 billion.
The fear is the loans will not be repaid in full. Dubai World’s creditors include some of the banks which escaped most lightly from last year’s meltdown, such as HSBC and Standard Chartered as well as the UK state backed RBS and Llyods Banking Group.
If Dubai defaults on its debts it would be the largest sovereign default since Argentina in 2001. Dubai World has 70 creditors who could face write-downs on their debt.
Why have investors got so frightened?
The worry is that this could be the alarm bell that heralds a new round of financial chaos. History shows that crises often start in the most unexpected places. The south –east Asian financial crisis of 1997, which engulfed Indonesia and South Korea, started in Thailand. In 2001 it was Argentina and last year’s problems first bubbled to the surface in Iceland and Ireland.
Guardian Newspapers Limited, 2009

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