views

CENTRAL BANK ACTS TO HALT DUBAI ROUT

The United Arab Emirates&rsquo; central bank has issued emergency credit facilities to banks in the region amid mounting fears that Dubai&rsquo;s debt crisis could contaminate the rest of the Middle East.<br /><br />The bank &ndash; based in Abu Dhabi &ndash; issued a statement yesterday saying it &ldquo;stands behind local and foreign banks operating in the country&rdquo; and would offer them a special additional liquidity facility to shore up confidence among depositors.<br /><br />The move is an attempt to reassure investors after state-owned Dubai World asked creditors for an extension on repaying some of its $59bn (&pound;36bn) of debts last week. News of Dubai World&rsquo;s difficulties sent stock markets plunging around the world and fuelled fears that sovereign debt was not as safe as previously believed. Dubai&rsquo;s credit default swaps surged to 675 basis points on Friday, meaning insuring $10m of the emirate&rsquo;s debt would cost &pound;675,000.<br /><br />An announcement from the Dubai government giving further reassurance about the situation is expected today as markets in the Middle East reopen after the Eid holiday. <br /><br />Analysts saw the measure by the UAE central bank as a means to avoid a run on deposits. Shawkut Raslan of Prime Emirates Brokerage said: &ldquo;I think some foreigners will take their money out of the country and others will be afraid to put their money in to these markets.&rdquo;<br /><br />Over the weekend officials from across the Emirates met to thrash out a response to the crisis. Abu Dhabi, capital of the UAE, said it was still weighing up how to assist its neighbour, in a move that suggested it would not be writing Dubai a blank cheque. &ldquo;We will look at Dubai&rsquo;s commitments and approach them on a case-by-case basis,&rdquo; an official said. &ldquo;It does not mean that Abu Dhabi will underwrite all their debts.&rdquo;