Markets spooked by Dubai World debt
TEXT OF INTERVIEW
Steve Chiotakis: Dubai’s debt problems have spooked world-wide stock markets again today. Dubai World, the United Arab Emirate’s main development engine, said it can’t — for now — start paying back $60 billion in debt. That’s raised concerns about an increased threat of default.
Marketplace European Correspondent Stephen Beard is with us now to talk about the worldwide implications. Hi, Stephen.
Stephen Beard: Hello, Steve.
Chiotakis: Gosh, Stephen though, $60 billion, I mean relative to the huge sums of bad debt that we’ve heard about during this financial crisis, I mean it doesn’t seem like a lot of money. Why is the concern about Dubai World so intense?
Beard: Well, $60 billion of declared debt. The fear is it could be a lot more than that, much in excess of $100 billion, and that the total debts of government-backed companies in Dubai could exceed 100 percent of the city state’s GDP. So that’s raised suspect of a government default, and that, in these jittery conditions, has raised of other governments defaulting. In fact, the cost of insuring against default by other countries like Russia, even Greece and Ireland, jumped sharply yesterday.
Chiotakis: You know, Stephen, when we think of countris in the Persian Gulf, we assume that there’s a lot of oil, that they’re rich and flush with all this cash. I mean, how is it possible that Dubai is in this situation?
Beard: Dubai itself doesn’t have any oil, but its neighboring emirate, its fellow emirate Abu Dhabi has — it’s pumping 2.5 million barrels a day and has a sovereign wealth fund, the largest in the world, worth $600 billion. And some people indeed are saying Abu Dhabi is not going to allow Dubai to go bust. However, Abu Dhabi has only so far let a little bit of money trickle into Dubai. It’s clear that it’s not going to pay all of Dubai’s debts, and so the big uncertainty is which banks, which bond holders are not going to be repaid. That’s the thing that’s unnerving markets.
Chiotakis: All right. Marketplace’s European Correspondent Stephen Beard in London. Stephen, thanks.
Beard: OK, Steve.
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