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Will Dubai Default?

Posted by Larry Doyle on November 27th, 2009 8:29 AM |

Will the government of Dubai default on its debt? Will that trigger a wave of defaults in other nations or in selected companies? With Dubai situated in the oil-rich Middle East, how could this nation be on the precipice of default?

Thanks to kbdabear for sharing with us this unsettling story from The Times.co.uk, Dubai in Deep Water as Debt Crisis Spreads:

Fears of a dangerous new phase in the economic crisis swept around the globe yesterday as traders responded to the shock announcement that a debt-laden Dubai state corporation was unable to meet its interest bill.

Shares plunged, weak currencies were battered and more than £14 billion was wiped from the value of British banks on fears that they would be left nursing new losses.

Nervous traders transferred the focus of their anxieties from the risk of companies failing to the risk of nation states defaulting. Investors owed money by Mexico, Russia and Greece saw the price of insuring themselves against default rocket.

If Dubai were to default, it would be the first nation to default on its debt since Argentina in 2001. Whether Russia in 1998, Argentina in 2001, Dubai currently, or a number of countries in the future, the weight of unbearable debt forces default. The fact is, this overwhelming debt burden is not localized but truly global in nature. Situations like Dubai should not surprise us. In fact, I would be surprised if we do not witness more nations facing default. (more…)






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