by David Harris
JERUSALEM, Dec. 4 (Xinhua) -- Anyone departing Dubai from its enormous new airport terminal is left with a sense of the scale of this modern-day miracle. A fishing village just a couple of generations ago, last year Dubai was said to have 17 percent of the world's cranes operating on its skyscrapers and residential properties.
As one takes to the air today, the overriding impression is of the size of the coastal city and its massive growth. However, as aircraft head from Dubai in all four directions, the more observant passengers will notice most of the building sites lie fallow.
Dubai is in the midst of its own deep economic crisis. For most analysts, the question now is whether the country's economic meltdown will also take to the skies and begin impacting on other parts of the world.
In Israel, the sense is that the emirate's financial calamity will not have a major impact. The butterfly effect, Israeli experts say, will not ripple too far from the golden beaches of the Gulf.
UNIQUE CASE
The unanimous view of more than half a dozen leading Israeli economists who spoke with Xinhua is that the Dubai experience is a one-off given the uniqueness of the circumstances of this kingdom within a kingdom.
Dubai is not a country. It is one of seven principalities that comprise the United Arab Emirates. It is not even the capital, despite its world fame. That honor belongs to Abu Dhabi, just to its south.
Like Israel, Dubai has little in the way of raw materials. Oil accounts for just four percent of its gross domestic product (GDP). Over the last couple of decades Dubai's economy has grown in leaps and bounds thanks to the emirate becoming a regional financial hub and even more so to its focus on real estate.
The highest skyscrapers are to be found in Dubai City. What was to have been the world's highest building was half way to completion in Dubai when it was announced another megalith to be constructed just down the road would eclipse it.
Yet all of this building bigger, better, faster, higher came with a price tag that only became apparent about a week ago.
In recent years economists have warned that Dubai's property bubble could not last forever but no one was predicting with certainty when it would burst.
When the property giant Nakheel, a subdivision of Dubai World, announced that it could no longer keep up with debt repayments the writing was on the wall in 40-billion-dollar-high letters.
"They did exceptional things in Dubai with gluttonous investments on an unparalleled scale. As a result I don't think one can make comparisons to other places," said Moshe Justman, dean of the Faculty of Humanities and Social Sciences at Ben-Gurion University of the Negev in southern Israel.
THE AFFECTED
In order to build to this extent, Dubai's construction colossuses had to borrow, and, as the world is still learning from the sub-prime crisis, when one borrower defaults it sets of a chain reaction.
In this case, it is the banks that are being hit hard. Nakheel alone owes British banks, led by HSBC, some 5 billion U.S. dollars. Lloyds Bank and the Royal Bank of Scotland are among other Britishcreditors.
Standard Chartered, Emirates NBD and Abu Dhabi Commercial Bank also face the possibility that they will have to swallow significant losses.
Much of the money that has funded the expansion of Dubai came from Southeast Asia. As a result, when news of Nakheel's default first broke, it was Asian markets that fell the most.
Anyone investing in Dubai is likely to be affected, said Justman.
It is a view shared by Arie Melnik, a professor of economics at the University of Haifa. While the mega famous and ultra wealthy can afford to take a loss on a personal level -- people like British soccer star David Beckham and his pop-star wife Victoria --others cannot.
With house prices slumping in Dubai, the myriad expatriates are simply not in a position to sell their properties right now, said Melnik. Demand for residential property in the country has also nose-dived, especially as unemployment is on the rise and there isnot the same amount of work for expatriates there once was.
This too will have a knock-on effect for some financial institutions. Because the property owners cannot sell right now, they cannot pay off their debts, leaving banks out of pocket.
Justman adds one other area that may be affected: the emerging markets. If one such as Dubai has proved it cannot repay debts, it could be that potential investors will shy away from other developing countries for fear of a repeat performance. However, Justman does believe Dubai is a unique case. LIMITED GLOBAL IMPACT
With the global economy seemingly on a path to recovery following 18 months of crushing and oftentimes fatal losses, there is room to conjecture that the Dubai crisis could put the upturn in serious jeopardy.
Yet the Israeli experts do not think so. "With all due respect to Dubai, it's a small player on the world stage," said Melnik.
Of the total 60-billion-dollar debt said to be at risk, only some of it is totally lost and in the world context that is small fry, he said.
Take China, for example. If you compare the balance of payments of the two countries "they're simply not in the same league," said Melnik.
Additionally, argues Justman, the very fact that Dubai is such an unusual case means the knock-on effects are likely to be limited.
However, there is growing concern among leading international economists that there are other bubbles waiting to burst. There is plenty of attention on Greece right now, where the 2009 budget deficit is expected to be more than 12 percent of GDP.
Other small eastern-European nations are also under scrutiny, with some doomsday analysts suggesting that British economy could still implode given its burgeoning debt.
While Israeli and other economists do not believe the Dubai crisis to be the weak card that brings the whole house down, they do see a nervous global economy fighting to escape the clutches of recession and they warn there may be more bubbles waiting to burst just around the corner.
Special Report: Global Financial Crisis
