Dubai must toe Abu Dhabi line

27 January 2010

Ceding power will be tough for Dubai, but it is necessary for the sake of its economy and for the strength of the federation as a whole. Abu Dhabi’s decision to spend tens of billions of dollars bailing out Dubai begs the question of what Abu Dhabi will get in return

Clearly Dubai is in need of financial help from its wealthy neighbour, whether that help is structured as coming directly from Abu Dhabi itself or from the federal government.

But the federation will rightly demand something back from Dubai. In particular, it is likely to put a brake on the more fanciful real estate projects for which the emirate has become famous.

The Northern Emirates have already come to terms with their reliance on the federal government. Abu Dhabi already acts as a guarantor of their power projects, for example, and they, in turn, have been happy to relinquish some of their autonomy.

Ceding power and influence will be tough for Dubai, but it is necessary – both for the sake of its own economy and for the strength of the federation as a whole.

With Dubai’s economy expected to shrink further in 2010, banks and investors will not put fresh money into Dubai without a strong federal guarantee. If Abu Dhabi is to limit how much of its own wealth it has to spend in Dubai, it will need stronger federal organisations that can limit the amount of money -borrowed to fund speculative projects.

The temptation for those dealing with Dubai’s debt crisis will be to try to do so behind closed doors. But full details of any financial restructuring that follows must be made public.

As was demonstrated during the Dubai World debt crisis in November 2009, a lack of -disclosure simply raises greater fears among creditors. And the close links between the emirates mean problems in one economy can affect all the others, even Abu Dhabi’s.

Ultimately, the emirates have more to gain through greater co-operation than they do by trying to continue under the looser federal structure currently in place.

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