Dubai woes loom as Gulf leaders prepare to meet

AP News
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Posted: Dec 13, 2009 11:12 AM

DUBAI, United Arab

Emirates (AP) _ Ongoing concerns about Dubai's financial woes could overshadow efforts to more closely align Gulf Arab nations' economies when the region's leaders meet Monday in Kuwait.

The annual gathering of top officials from the six-member Gulf Cooperation Council economic bloc begins on the same day a closely watched $3.52 billion pile of Dubai debt comes due.

Investors are eagerly awaiting details on how, or indeed whether, Dubai will cover the payment, which is seen as a key test of the indebted city-state's broader credit worthiness.

"This is not a story that's going away," said Rachel Ziemba, a senior analyst at Roubini Global Economics who monitors Gulf economies. "This is the aftershocks, the reckoning after the credit crisis."

Dubai's unfolding credit problems have raised new concerns about a lack of transparency throughout the oil-rich Gulf's financial system, which was already rocked once this year by a rare public dispute over billions of dollars in debt by two of Saudi Arabia's most prominent family businesses.

That family feud, which spurred lawsuits in the U.S. and Britain, prompted lenders to reassess their exposure to the region's often secretive companies.

Now some analysts fear Dubai's debt problems could spill over to other Gulf states and make financing harder to secure throughout the region. Dubai is one of seven sheikdoms that make up the United Arab Emirates.

While worries about Dubai continue to dominate headlines, the GCC's Kuwait hosts are calling for fresh talks on plans to forge a Gulf-wide monetary union that could pave the way for a common currency like the euro.

Efforts to create a single monetary bloc have been floated for years but have struggled to gain traction. All the Gulf states peg their currencies to the dollar except Kuwait, which relies on a basket of currencies.

Talks aimed at a monetary union faced their most serious setback in May when the UAE, the Arab world's second biggest economy, abruptly backed out of the plan. Oman had earlier said it would not join the union.

John Sfakianakis, chief economist at the Riyadh, Saudi Arabia-based Banque Saudi Fransi-Credit Agricole Group, said more clarity is needed on how and when the process will move ahead.

"They will have to eventually come out with some kind of commitment to the union," he said. "That will give confidence to the market."

Kuwait Finance Minister Mustafa al-Shimali has urged the Emirates and Oman to reconsider membership in such a union, even if the creation of common currency could take a "number of years."

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"This would strengthen the region's economies and make it an economic bloc that would be taken into account at a global level," al-Shimali told Kuwait's news agency KUNA on Friday.

Kuwaiti officials say other topics to be discussed include a common customs policy and electricity grid, the creation of a railway authority and regional political issues, including Iran's relations with the GCC and its nuclear program.

Also likely on the agenda, according to KUNA, will be talks aimed at addressing the deteriorating security situation in Yemen, where Shiite rebels have been fighting Yemen's central government.

Saudi Arabia began striking back at the rebels last month following an incursion by the fighters into the desert kingdom.

Last year's summit in Oman was ostensibly aimed at discussing details of a unified monetary pact, but leaders spent much of their time instead hammering out a condemnation of Israel's attacks on Gaza.

The GCC is made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.