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2009-12-04 11:06:43
By BARBARA SURK, Associated Press Writer Barbara Surk, Associated Press Writer 2 hrs 1 min ago
DUBAI, United Arab Emirates Dubai's ruler writes poetry, rides horses across the desert in long-distance endurance races and hobnobs with royals like the Queen of England. Mixing extravagance with boundless ambition, he commanded the desert city-state's meteoric rise and helped sow the seeds, some observers say, of its debt crisis.
Sheik Mohammed bin Rashid Al Maktoum's business-over-politics approach turned Dubai into a city-state with the surface trappings of Western liberalism a thin veneer over the conservatism and strict political boundaries familiar throughout the Arab world.
Drink at the bars, wear bikinis at the beach, hit the discos and make money, was the overt message. But there was a red line in the sand: Don't question his grandiose plans or the foundations they were built on. Those foundations, it turns out, were not oil, but other people's money. Lots of it.
"In the past, the ruler was trusted on finances because everyone thought they were backed by oil," said Simon Henderson, a Gulf and energy specialist at the Washington Institute for Near East Policy. "It will be different from now on."
Dubai is one of seven highly autonomous statelets that make up the United Arab Emirates. Though UAE capital Abu Dhabi has huge oil riches, neighboring Dubai has very little.
The 60-year-old Mohammed's confidence and ambition gave way to aspirations to place Dubai in the same league as London or New York.
Forging ahead with eye-popping development, he vigorously wooed investors, leading to excesses that created a speculative bubble. One of the biggest borrowers was the government's own development vehicle, the conglomerate Dubai World, which shook markets with its announcement last week that it needed to delay payments on part of its $60 billion debt.
Mohammed and his government, however, have refused to stand by the company's debts, and when the signs mounted that Dubai was falling victim to the world economic turmoil, he denied it and never came up with a recovery plan.
Dubai's ruler supervised the Gulf city's stunning makeover in the past decade, turning it into a model for development in an Arab world plagued with poverty, corruption and nepotism.
Along with extravagant projects like artificial islands and glitzy skyscrapers, international schools, multinational companies and luxury hotels mushroomed around the city. They offered young Arab professionals jobs and a lifestyle they couldn't find or afford in Cairo or Beirut.
Like his Muslim city-state with a Western outlook, Mohammed, whose net worth is listed at $12 billion by Forbes, has held onto deeply rooted Arabian traditions while pursuing his ambitions for modernity.
He breeds camels and is a passionate lover of horses. He rides endurance races in the desert and drives a customized Mercedes four-wheel drive SUV along Dubai's sprawling highways. He listens to residents' complaints the old-fashioned way, in his diwan, or reception room, but also regularly updates his Facebook profile and exchanges tweets with Dubai's youth.
That mix has suited his personality and ruling style in a region where personality cults around leaders are considered part of good governance.
Taken in by Mohammed's marketing skills, deposed politicians, oil tycoons and powerful executives willingly participated in Dubai's real estate bonanza no questions asked as did professionals from Europe and Asia who flocked to the emirate, paying for condos and villas before building even started.
Some multinational companies even made the emirate their regional headquarters, and company executives rubbed shoulders with Hollywood stars like Charlize Theron and athletes like Tiger Woods.
Charmed by Mohammed's personality and his assurances, investors poured in billions.
Taking advantage of cheap credit, developers some run by the government and other's closely linked to it built soaring skyscrapers and luxury residential compounds on man-made islands at a pace that outstripped real demand. Despite oversupply, real estate prices soared, in a mirror image of what happened in the United States before the subprime mortgage crisis sent the world into its worst recession in over six decades.
When the global financial crisis hit Dubai, prices collapsed by 50 percent in a year while the cheap funding dried up, meaning other projects either sat unfinished or were scrapped.
Now, as the emirate's largest government-owned conglomerate, Dubai World, reels under the weight of its $60 billion in debts, Mohammed has retreated from the limelight.
Given how intertwined Dubai is with its ruler and members of the Maktoum dynasty, the fallout could create trouble for Mohammed, who must now either hope that the neighboring emirate of Abu Dhabi will step in with some sort of bailout or that creditors will see they have little choice but to agree to restructuring debt.
"It will be very difficult for Sheik Mohammed to survive this one," said Christopher Davidson, an expert in Gulf affairs at Britain's Durham University and author of two books on the Emirates. He said Mohammed misled investors by giving them the impression he had money to back his plans.
The Associated Press e-mailed requests for an interview with Mohammed but they were not answered.
Dubai officials said the city's government will not be responsible for the company's debts and Mohammed has shown little inclination over the past week to address Dubai World's debt problems directly.
When he recently came forward, he accused the media of exaggerating the situation and arguing that the market reaction showed a "lack of understanding of what is going on in Dubai."
The lack of clarity from Dubai's ruling and corporate elite has been evident over the past year, when Dubai became the Gulf region's biggest credit crunch victim.
At a rare meeting with reporters two months ago, Mohammed's answer to a question about Dubai's debt-load was: "I assure you we are all right. ... We are not worried."
By November, he had grown more testy. In a meeting with international investors in November, he switched from Arabic to English to tell naysayers in the media to "shut up."