Dubai, once home to booming construction projects and ambitious dreams, is now a city of auditors tasked with untangling the mess left behind by last year’s debt crisis. The task is enormous: Dubai World has agreed to repay $25 billion of debt, and the auditors will dissect where the money went and what financial landmines exist. Additionally, legislation has been enacted to improve governance and increase financial transparency at state-controlled companies. Following the crisis, Abu Dhabi, Dubai’s neighbor, provided support in exchange for a power shift and a more conservative approach from the previously brash emirate.
Dubai’s credit default swaps serve as a visual reminder of the city’s struggle to recover from the financial crisis. The news of Nakheel’s debt trouble was an unexpected and significant shock. The restructuring demonstrated the severity of Dubai’s financial troubles, and the role of accounts and lawyers in picking the emirate’s financial mess was crucial. As the auditors untangle the web of debt and investigate corruption at the highest levels, Dubai contemplates returning to its old self or embracing a more realistic and conservative approach to governance and finance. Only time will tell whether Dubai will achieve a balance between growth and fiscal responsibility.
The financial crisis not only shook the UAE’s economy but also shattered Dubai’s attractive growth model. Before the crisis, high-flyers were at the helm and young entrepreneurs were idolized, but the crisis prompted a shift in power and a call for more realistic approaches. With questions about Dubai’s ability to achieve past growth and avoid exceeding past excesses looming, Dubai is in search of international investors who believe in its future. Abu Dhabi’s ascension following the 2008 global credit crunch was the beginning of a chain reaction that led to the extinguishing of Dubai’s heedless growth.