Dubai World state fund that found itself on a brink of default nearly caused a new world crisis. Due to the information about a possible collapse of the international logistics center, Russian stock market lost approximately $26 billion within a few minutes, experts say. The pa nic did not last long, and the Russian ruble only lost 20 kopeks. Yet, the experts believe that the Russian ruble may lose 10% of its value by the end of the year and another 10% in the first quarter of the next year. This will cause stagnation of the Russian economy and a possibility of a new devaluation.
The credit boom symbolized by the man-made island shaped like a palm tree with luxurious villas and hotels has ended in a default, as usually. The problems of Dubai’s leading company, state conglomerate Dubai World, wreaked havoc in the entire world. Being on a brink of default, Dubai World asked its creditors to grant its affiliate a six-month delay in payments. The market considered this information to be a threat of a new wave of the world financial crisis. For the investors, the news was shocking. This Persian Gulf country was the least one the investors expected problems from.
Standard & Poor's and Moody's immediately lowered Dubai World’s ratings and think a default is possible. At the same time, ratings of other Dubai state companies were lowered. The total debt of Dubai is approximately $80 billion, of which $70 billion is the debt of state companies. According to Credit Suisse, credit positions of European banks in regard to state Dubai corporations amount to $40 billion. According to Dow Jones, in June 2008, British banks HSBC, RBS and Lloyds, Dutch ING Groep, French Calyon, Japanese Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui, repots Kommersant.
The key European stock indices decreased by 3-3.3%. Quotations of the largest European banks suffered the most, dropping by 4-8%. At the same time, Dubai’s credit default swaps gained in price.
According to Russian officials, there is nothing bad in the situation for Russia. Yet, Nezavisimaya Gazeta newspaper says that experts think there might be other problems. For example, China is also experiencing consumer credit boom, and events similar to those in Dubai may happen there as well.
Russia is not affected because of poor development of the stock market. On the other hand, increase in inflation is expected by the end of the year since ruble will lose its position to other currencies.