Paper 1: Abu Dhabi Economic Bailout
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Paper 1: Abu Dhabi Economic Bailout
In this paper I want to examine the bailout of Dubai by the city of Abu Dhabi. When I was in high school this issue really affected me. To many people this action signaled so many meanings. For me the bailout was a signal that the people of both cities treated each other like brothers and wanted to share in the success and the pains each faced. One article I found written by MARIA ABI-HABIB notes that many people are very doubtful of what the bailouts can accomplish. Ms. Maria seems to bring up that Dubai keeps asking for more and more money and this is not sustainable for the Abu Dhabi government. On the other hand, an article by Daniel Gross seems to indicate that not only was Dubai's implosion completely predictable, it is not really that big deal in the long run of things, and that the bailout was completely necessary. I think these are very interesting resources because they show very opposite views of the situation that correspond to economic problems because the cities have to consider each other's benefit. On the other hand it also raises some sociological questions because you are not sure if Abu Dhabi is trying to impose a certain way of living.
In the paper by Maria Abi-Habib, it is also revealed that both Dubai and Abu Dhabi are not being forthright to the citizens of the United Arab Emirates. Whereas Abu Dhabi had initially announced a bailout of more than $20 billion, it was later reported that only half of that amount ($10.8 billion) had been released to Dubai by Abu Dhabi. It also emerged that this was 80% of the funds that analysts had said Abu Dhabi had committed to Dubai. This raised issues on whether Abu Dhabi was committed to settling the debts accrued by Dubai. It also brought up the issue of whether Dubai had concrete plans on how to repay its debts and resolve its economic woes. This dishonesty on the part of Dubai and its ability to restructure its debt was further amplified by the announcement that the city had secured extra money in the form of bonds only to backtrack on this report after a few hours talking of a standstill (Gross, 2009; Xinhua News, 2009; Abi-Habib, 2010; Infinite Unknown, 2013).
Four issues stand out from this whole saga. First is the issue of openness by Dubai. Second is the issue of economic management. Third is the issue of government communication and fourth is the issue of the relations between the different cities in the United Arab Emirates. On the issue of openness, Dubai stands accused on two different fronts. First, the leadership of Dubai was less forthright with its residents and investors about the scope and amount of debts it owed. The duty of any leadership is to operate accountably and communicate its accurate financial position to the residents who are the taxpayers and stakeholders in the city. However, the leadership is not based on democratic ideals and this may be a contributory factor to the opaqueness with which the Dubai leadership operates.
Besides dealing honestly with its residents, Dubai also has an obligation to ensure that it operates above board without any forms of financial impropriety. The point here is that Dubai ought to be in a position to account for each penny out of the mountain of debts that it committed itself to. Every just government has a duty to put in place a public financial oversight authority and a legislature that is empowered to review and if possible veto any debts that the city gets itself into beforehand. With regard to Dubai, there seems to be a weakness with regard to management and oversight of public finances and this comes out very clearly in the two articles cited at the start. The problem could be traced to a lack of a democratic culture where citizens and their elected representatives do not have the wherewithal to demand answers from the government. Related to this is the issue of just how answerable Dubai and the other cities are answerable to the overall leadership of the UAE. It would seem reasonable to believe that the overall leadership of the UAE ought to have a say on issues that touch on the survival of its cities especially when it comes to accumulation of debts that have the potential to choke the city.
The second issue is the issue of economic management. Dubai is one of the most advanced cities in the world and its handling of the debt issue was very embarrassing. Official pronouncements of the required policy action were revoked and denounced with such ease and casualness thereby lending the question on whether the economic managers of Dubai were well drilled in the art of economic management. Related to this is the issue of communication by the leadership of Dubai. The official communication was comical and left a lot to be desired. Even though a communication unit was later formed to issue pronouncements on behalf of the leadership of the city, a lot of harm had already been done by the previous careless statements issued about the state of Dubai’s economy. The statements caused a lot of harm to Dubai’s economy and lowered the confidence that investors had in the city. Going forward therefore, it is hoped that this was a lesson well learnt and that no similar mistakes will be repeated in future.
But of more fundamental importance is the aspect of accountability raised by the careless pronouncements made. From a sociological point of view, it can be argued that the leaders of Dubai are not accustomed to accounting for their actions to the public. It is this inexperience in communicating government policy clearly and forthrightly that made them approach the issue of the economic debt so casually and led to make the careless statements. Perhaps it also betrays a certain honesty on the part of the Dubai government as a less forthright administration would be refined in the use of propaganda so that they would have found it easier to communicate the debts situation without raising alarm.
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