Categories
Security Finance

Dubai’s Woes, Iran’s Headache

Aspirin tablets / Photo: wikimedia commons
Aspirin tablets / Photo: wikimedia commons

Dubai has celebrated the opening of the world’s tallest skyscraper, the Burj Dubai, with a spectacular – not to mention costly – fireworks display. But the 10,000 fireworks did not blind us from the fact that the city and those who have put their hopes and money into Dubai are hurting. We all know who the main losers are:

    • The all-too-credulous investors willing to give cheap loans to Dubai World and Nakheel assuming their loans were guaranteed by the governments of Dubai and Abu Dhabi: A significant amount of this debt is believed to be bad debt (read: not backed by viable assets) – Moody’s has put the figure at about USD25 billion.

 

    • The city of Dubai itself, whose debt load – depending on whose estimates you are referring to – amount to between 100 and 200 percent of Dubai’s USD82 billion GDP: And it is not over yet – real estate prices in Dubai are expected to decline even further in 2010 as investors are abandoning their construction projects.

 

  • Dubai’s political independence within the UAE’s loose federation: Dubai has been enjoying special sovereign rights, such as control of customs, over parts of the judiciary and of its stock market. The UAE’s oil-rich capital Abu Dhabi’s offer to partially bail out its broke neighbor will most likely come at a political price. It is likely that Dubai will have to relinquish some of its sovereign powers to federal authorities.

Yet another loser, less talked-about but most significant in geopolitical terms, could be Iran.

During the Iran-Iraq war, Dubai was one of three UAE emirates that leaned more toward Iran, and it has continued to maintain the closest ties to the country among all UAE emirates. Iran is one of Dubai’s major trading partners. Both benefit tremendously from this relationship. As one observer states, “The trade between Iran and Dubai is one of the principal sources of Tehran’s confidence that it can survive US-led sanctions. Iranian investment in Dubai amounts to about US $14 billion each year.”

Some banks have been accused by the US government of indirectly doing business with Iran through Dubai-based institutions. Vice versa, Tehran has been accused of circumventing sanctions by doing business through Dubai based front companies.

Abu Dhabi has long resented Dubai’s ties to Iran. The UAE fears Iran’s regional ambitions and nuclear program, and it still has a territorial dispute over three UAE islands currently occupied by Iran. Besides, Dubai’s closeness to Iran is an embarrassment to the UAE in its close relationship with the US.

Dubai’s financial crisis is putting Abu Dhabi into the enviable position of being able to attach strings to its bailout offer. Although the US has kept mum about it in public, no doubt Washington encourages Abu Dhabi to make bailout money dependent on Dubai severing commercial ties with Iran.

And as Dubai is tightening its belt, Iran may find it just a little harder to circumvent international sanctions.

Categories
Finance

Kiva Confusion

Photo: Jared and Corin/flickr
Photo: Jared and Corin/flickr

The New York Times published an article on Sunday that highlighted a blog post by David Roodman, a research fellow at the Center for Global Development, that questioned the transparency of Kiva, a ‘microfinancing matchmaker.’

Kiva promotes itself as a middleman between microlending organizations and microborrowers. The problem, according to Roodman, was that due to how the microborrowers were showcased on the site, some donors believed that they were giving money directly to microborrowers and not to microlending organizations.

He also suggested that Kiva does not (or did not, since they’ve changed the wording on their site) do a good job in explaining the money path.

Over at Foreign Policy’s blog, Passport, Annie Lowery gives a great summary of the confusion about Kiva and the publicity surrounding that confusion, so I won’t go into that.

Since the issue seems to focus on the wording on the site, which is Kiva’s calling card, then the critcism is probably warranted. But if you want to learn more about Kiva and what it does, check out this ISN Podcast with Kiva’s Fiona Ramsey from June.

Categories
International Relations Government Business and Finance Finance

Swiss International Studies, Migration and Finance

Swiss Network for International Studies / snis.ch
Swiss Network for International Studies / snis.ch

I’m writing from Bern, where I’m attending the Swiss Network for International Studies‘ (SNIS) first yearly conference. The Network was established two years ago to promote interdisciplinary research in issues of international relevance among Swiss academics.

The international relations field is still pretty new at Swiss universities. It might well be a corollary of the fact that, for much of the past century, the country’s neutrality in international politics boiled down to passivity. Several speakers at the first day of the conference reminded us that Switzerland only joined the UN in 2002.

In any case, the young Swiss’ interest in international affairs is exploding at the moment: A Geneva professor talked to me about the exponential rise in student numbers since his university launched an undergraduate program in international relations.

Here are two highlights from the first day of the conference – based on my own biased personal interests…

Categories
Government Finance

UN, G20 and the Dollar

Dollars ! / Photo: pfala, Flickr
Dollars ! / Photo: pfala, Flickr

In the August 2009 ISN Special Issue entitled “Redesigning Global Finances- The End of Dollar Dominance?“, I asked whether the window of opportunity to redesign the global financial architecture has already passed with no real progress having been made. This week, the UN Trade and Development report was published, calling for a “new approach to multilateral exchange-rate management to complement stricter financial regulation.” Their critique of the dollar system contains the usual arguments: it is prone to fluctuations, creates current account disequilibria and requires poor countries to create huge reserves better used elsewhere. To mend this, they suggest nothing less than a new Bretton Woods system. Accordingly, it would be based on managed flexible exchange rates at sustainable levels, thus making great fluctuations and currency crisis a thing of the past and level the playing field for international trade. The report is interesting not because it contains revolutionary new ideas, but because a UN agency officially calls for alternatives to the dollar system.