Liquidity 'protects region' in crisis

Emerging economies can weather the worldwide financial crisis by putting preventive mechanisms in place, says chairman of Dubai Group.

DUBAI // Emerging economies such as the UAE's can weather the worldwide financial crisis and learn from it by putting the right preventive mechanisms in place, the executive chairman of the powerful Dubai Group has said. Speaking at the World Economic Forum's Summit on the Global Agenda, Soud Ba'alawy said the recovery in UAE's banking and property markets would be "much quicker" than in other countries because of low interest rates and the vast liquid cash reserves available to bail out struggling institutions.

"The UAE, or, to be fair, this region, will bounce back because of liquidity in the system and speedy intervention of local governments, and we are expecting the recovery to be much faster than first anticipated," Mr Ba'alawy said. "Growth is at six per cent in this region, and it won't drop less than two or three per cent, so the outlook is good here. "On the other hand, this is a big opportunity for emerging markets to put in place procedures and regulations, where older markets struggle to make changes."

He said the UAE would continue to invest in US markets and saw the financial outlook as "promising" after the election of Barack Obama to the presidency. "We have been investing in the US since 2001 and will continue to invest in the US," Mr Ba'alawy said. His company's main focus is on banking, investments and insurance, at a regional and global level. Mr Ba'alawy, who was previously the chief executive of Dubai Investment Group, chief investment officer of Dubai Internet City and vice president of Dubai's Executive Office, also said consumers should live within their means.

"People need to understand when Islam as a religion came it had its own financial system and called on people to live within their means and not to overspend," he said. "There are lessons to be learnt from this. People should start spending what they can afford to spend and not get into debt with credit cards, loans and cars. Debt was never a good thing, and everyone now seems to be in debt, including me. "The world will change, so for now, people should tighten and manage their balance sheet." Mohammed el Erian, managing director of Pacific Investment Management Company, said that although the markets would recover, caution was needed. "If you look at the crisis, it was a catalogue of mistakes, from lenders to consumers... Expect the most unexpected, think the unthinkable. Just look at Lehman Brothers a few months ago. Now that's expecting the unexpectable," said Mr Erian. Samer al Ansari, the head of Dubai International Capital, said he thought the financial markets would not recover until 2010. Nevertheless, he said, "there will be fantastic opportunities in the next 12 to 18 months and that is not exclusive to Europe or North America". He said his company's US$70 billion (Dh257bn) debt was "manageable" and that the Gulf's commercial hub would not need to be "bailed out". Dubai International Capital, which is owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, was beginning to turn attention back to Europe and the US as valuations began to look better, although there was still room for further price drops, Mr Ansari said. [e-mail]