Slippery Sands

In the annals of bailout history, commitments don't get a lot more slippery than this.

U.A.E. Minister of Economy Sultan bin Saeed al-Mansouri said further federal government support for Dubai should be “studied” properly. “Each issue has to be studied in a proper manner, evaluated and based on that an answer will be provided at the federal level or the local level,” al-Mansouri told reporters in Abu Dhabi today when asked whether the federal government will extend more financial support to Dubai.

Well, at least the "case-by-case basis" statement made by Abu Dhabi earlier in the month is being applied consistently.  Less consistent, of course, have been Dubai's mercurial positions with respect to their creditor intentions.  There will be a standstill.  There won't.  Debt will default.  It won't.  Restructuring is out of the question.  It will be orderly.  The uninitiated might view this kind of committed commitment to the noncommittal as a sign of inexperience or confusion.  This would be to badly misunderstand the nature and of opacity in Dubai.  After all, this is the city that managed to run up a $7.5 billion accounts payable account with the likes of Mitsubishi Heavy Industries, with some of the past due amounts going back years even as foreign developers are forced to flee the jurisdiction rather than face prosecution by Dubai courts and jail time over defaults often brought on, ironically, by the government of Dubai's refusal to pay them.  How long might one expect developers to stay around pursuing their claims against the government in such circumstances, one wonders.  It will be seen that the surreal is most often the product of exacting design in Dubai.

This appearance of chaos would also, it seems, be the product of intelligent design. Most likely, and decidedly hidden behind the scenes, a delicate dance of brinkmanship is being played out between the forces of public panic, in the form of Dubai's ability to threaten very public and very messy defaults and the disclosures of actual financial condition that tend to accompany such things, thereby throttling the credit ratings of the entire region for some time to come, and increasingly scarce (and expensive) bailout capital, in the form of whatever lies behind the deeply opaque balance sheets of Abu Dabhi's sovereign wealth fund.

One can easily picture Dubai officials poised in the antechamber to the press briefing room and its microphone bristling podium, reaching for the door handle, looking over their shoulder at the cluster of increasingly worried looking Abu Dabhi officials.  "We'll do it.  The press is right there.  We'll freeze it all!"  Ok.  Ok.  Come back.  Sit down.  Let's reason this out together.  No need to be dramatic.  Crisis averted.  For now.  Bloomberg reports:

Dubai World will present a standstill offer to banks in early January as the state-owned company aims to restructure $22 billion of debt, said three bankers who attended a presentation on the matter yesterday.

Another day in the debt desert paradise.