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OO RUEHWEB

DE RUEHDE #0545/01 0310934
ZNY CCCCC ZZH
O R 230635Z DEC 09 ZDS
FM AMCONSUL DUBAI
TO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHC/SECSTATE WASHDC IMMEDIATE 0009
INFO RUEHDE/AMCONSUL DUBAI

C O N F I D E N T I A L DUBAI 000545 
 
C O R R E C T E D   C O P Y - ADD CAPTION - CHANGE PARA NUMBERS 
 
SIPDIS 
STATE FOR NEA, E, EB AND SRAP 
 
E.O. 12958: DECL: 2019/12/23 
TAGS: EFIN PREL PGOV AE
SUBJECT: Dubai Debt Crisis: Treasury Acting A/S Baukol's Meetings 
with Dubai and UAE Federal Officials 
 
CLASSIFIED BY: Justin Siberell, Consul General, Dept of State, Exec; 
REASON: 1.4(B), (D) 
 
¶1.  (C) Summary:  Dubai and UAE Federal officials sought to reassure 
Treasury Acting Assistant Secretary Andrew Baukol that the Dubai debt 
crisis was on the road to resolution, with effective measures being 
developed through legislation to ensure such over-borrowing would not 
occur in the future, neither in Dubai nor any of the other Emirates 
in the seven-Emirate UAE federation.  Officials acknowledged berrorsb 
in coordination, timing and ultimately judgment in Dubai Worldbs 
November 25 standstill announcement, and indicated that hard lessons 
had been learned on the need for greater transparency and expertise 
in navigating the world of global finance.  Dubai will breturn to its 
rootsb of merchant activity, tourism, port and banking services as it 
emerges from the crisis and seeks to rebuild its reputation, 
officials predicted.  Dubaibs appointed Chief Restructuring Officer 
said that Abu Dhabibs December 15 $10 billion infusion would see 
troubled Dubai World through the coming six months only.  He would 
not predict whether additional bail out funds from Abu Dhabi would be 
needed following Dubai Worldbs restructuring effort.  End Summary. 
 
 
¶2.  (C) Treasury Department Acting Assistant Secretary for 
International Affairs Andrew Baukol visited Dubai for meetings on the 
financial crisis December 16.  He met with UAE Federal Minister of 
Finance Obaid al Tayer; Dubai Department of Finance Director General 
Abdel Rahim al Saleh; Investment Corportation of Dubai Managing 
Director Abdulaziz al Muhairi; Dubai Support Fund Director Marwan 
Abedin; and Dubai Chief External Restructuring Officer Aiden Birkett. 
 AA/S Baukol was accompanied by Treasury Office Director for Middle 
East/North Africa Francisco Parodi and UAE Treasury Attache Matthew 
Epstein.  Consul General and Dubai Econoff attended the meetings. 
 
------------ 
Hard Lessons 
------------ 
 
¶3. (C)  UAE Federal Minister of Finance Obaid Al Tayer told AA/S 
Baukol that despite the worldwide uproar surrounding Dubaibs debt 
crisis, the UAE economy remained fundamentally strong.  bWe are 
fine,b he said.  Overall, the UAEbs response to the global economic 
downturn had been sound, he asserted.  The government had played an 
effective role in shoring up the economy, in particular through 
Central Bank support for the UAE banking system.  The Nakheel sukuk 
episode was an exception, not the rule.  That said, he acknowledged 
berrorsb in Dubaibs handling of the Nakheel standstill announcement. 
Poor timing, combined with a lack of coordination preceded the 
November 25 announcement.  Officials were not prepared for the media 
storm that ensued, with many already on holiday (Eid al Adha, then 
UAE National Day), and therefore unable to develop or deliver an 
effective response.  Things are getting better, he said, with only 
eight days passing between the UAEbs December 6 breturn to workb and 
the December 14 announcement of the $10 billion cash injection from 
Abu Dhabi. 
 
¶4.  (C)  Dubai and the UAE had learned some bhard lessonsb from these 
events.  One was the need for greater transparency (the importance of 
which was emphasized up front by AA/S Baukol).  Required now are 
sound decisions, including a commitment to deal equally with all 
creditors, whether short-term bond holders or long-term holders of 
bank debt, he said.  Accurate and timely release of information, and 
not just bpublic relationsb were critical to restore Dubaibs 
credibility with financial markets.  (Note:  Al Tayer appeared to be 
cautioning against papering over Dubaibs problems with high-priced 
public relations tactics.  Dubai has recently retained the Brunswick 
Group to guide its public relations response to the crisis.  The 
comprehensiveness of the December 14 statement is seen as partly a 
reflection of this outside PR talent.  End Note.)  The UAE is already 
unique in the GCC in terms of openness, tolerance and the promotion 
of trade and economic development, Al Tayer said.  Coming through 
this experience bwill make us all a lot wiser and the country much, 
much strongerb, he declared. 
 
--------------------------------------------- ---------- 
A Strengthened Federation and bBack to Basicsb in Dubai 
--------------------------------------------- ---------- 
 
¶5. (C)  Crucially, Al Tayer saw upside to the crisis in a 
strengthening of the federal role in directing and coordinating 
future economic development decisions.  In the immediate term, this 
would be seen through the effort to establish an effective national 
public debt policy.  A law to guide the effort is already in draft 
before the UAEbs legislative body, the Federal National Council.  Al 
Tayer said the government intends to  strengthen the draft lawbs 
provisions to require each Emirate to appoint a bpublic debt officerb 
whose responsibility is to monitor debt levels for government and 
semi-government entities and report those levels to a Federal 
Government coordinating body.  Limits will be established vis-C -vis 
debt as a percentage of Emirate GDP.  The crisis also demonstrates 
 
 
the bstrength of the Dubai-Abu Dhabi relationship,b Al Tayer 
insisted, and dismissed extensive foreign media reporting on rifts 
between the two as ill-informed. 
 
¶6.  (C)  When asked what impact the debt crisis might have on the 
economic model pursued in Dubai over the past several years, Al Tayer 
responded:  bI find it unfortunate that anyone might consider what 
happened here over the past years part of a model.b  Dubaibs true 
economic model was its history of promoting trade, banking and port 
services.  That bmodelb  remained fundamentally sound, he said. 
Dubai must get bback to basicsb in order to revive its economic 
fortunes moving forward.  This idea was echoed by ICDbs Al Muhairi 
who added tourism to the mix identified by Al Tayer.  Whatever else 
had happened, Dubai remained the business, trade and travel hub for a 
region of 1.5 billion people and would need to retreat to bcore 
competenciesb to maintain that position.  Real Estate development, at 
the root of Nakheelbs (and therefore Dubaibs) problems, would take a 
back seat for many years to come. 
 
-------------------------------- 
Equity in Dealing with Creditors 
-------------------------------- 
 
¶7.  (C)  AA/S Baukol emphasized in his meetings the importance of 
equal dealings with Dubaibs creditors.  Al Tayer and the Dubai 
officials acknowledged the importance of that principle, though would 
not predict an outcome to the ongoing restructuring of Dubai World or 
other Dubai GRE debt.  Importantly, DSFbs Abedin said that the issue 
of overdue payments to contractors (some of whom are U.S. companies) 
would be a part of the governmentbs response to the crisis in 
addition to settling debts with creditors.  Consul General thanked 
the Dubai officials for acknowledging the importance of paying 
contractors, and reiterated the difficultly many U.S. firms have 
faced in getting through this extended period of non-payment for 
services rendered, mostly in the construction sector. 
 
¶8.  (C)  Dubai Finance Departmentbs Al Saleh said it was premature to 
suggest whether Dubaibs discussions with creditors would lead to 
restructurings (e.g., bhaircutsb on payback amounts) or refinancing 
(extended repayment terms), since auditors and consultants were only 
now digging into the details of the overall debt picture.  Al Tayer 
said that Abu Dhabibs December 14 injection of an additional $10 
billion support would buy Dubai time to breally investigateb the 
extent of the problem and develop an effective strategy to work 
through it.   bWe need to plan, and that takes getting into the 
numbers,b he said.  Since there had been no system in Dubai to 
monitor overall debt levels or to evaluate performing versus 
non-performing GRE units, a solution could not be credibly developed 
until a comprehensive analysis was completed. 
 
-------------------------------------------- 
Message from the Chief Restructuring Officer 
-------------------------------------------- 
 
¶9.  (C)  AA/S Baukol also met with Aiden Birkett, a Deloitte 
executive appointed in October as Dubai Worldbs bChief Restructuring 
Officer.b  Since his appointment, Birkett has maintained an extremely 
low profile, avoiding public exposure.  He told AA/S Baukol that 
peering into Dubai Worldbs books was like bdrinking from a fire 
hose.b  Dubai World had little to no internal auditing or 
restructuring expertise to support the Deloitte outsiders in their 
effort.  The single most important accomplishment to date for his 
team was to get Dubai Worldbs cash flow under control, Birkett 
claimed.  Birkett recognized that not all banks would be equally 
cooperative with Dubai Worldbs restructuring effort, but believed 
that most will ultimately agree with the terms set out.  He added 
that UAE-based banks in particular were massively relieved by Abu 
Dhabibs USD 10 billion bailout. 
 
¶10.  (C) With respect to the USD 10 billion cash infusion from Abu 
Dhabi, Birkett claimed not to know whether there would be additional 
amounts provided, but said it was he who had requested the funds from 
the Government of Dubai.  His restructuring team had also proposed 
the 6-month time frame for the Dubai World standstill and informed 
the Dubai government what they would need to see the restructuring 
effort through April.  He did not reveal if the USD 10 billion was in 
fact the full amount his team requested.  Birkett said that other 
Dubai GREs may need restructuring, but none would compare to Dubai 
World.  Birkett also said that it was critical that the Government of 
Dubai pay off Nakheelbs sukuk because not doing so would likely have 
precipitated an insolvency at Nakheel and would have made the 
restructuring effort even more complicated.  However, he said it may 
not have been the right time to pay off  Nakheel bond holders, 
especially at par.  Birkett claimed that after Dubai Worldbs 
restructuring is complete, many stakeholders and creditors will have 
taken sizeable haircuts in what is owed to them. 
 
 
------- 
Comment 
------- 
 
¶11.  (C)  After a short but punishing period where Dubai and UAE 
officials were unable or unwilling to meet the information demands of 
the international community and media, government officials are now 
eager to get their story of reassurance out.  There is no bbunkeringb 
going on here, as seen in the willingness of government officials to 
meet and discuss the crisis.  A belief persists that Dubai received 
unfair treatment in the press (indeed each of AA/S Baukolbs meetings 
with government officials included an extended rant on the subject), 
but officials also appear to be taking in the need for transparency 
and timeliness in addressing the crisis moving forward.  End Comment. 
 
 
¶12. (U) This cable was cleared by AA/S Baukolbs staff. 
SIBERELL