So much to rant about, so little space. The first order of business is to point out with a mixture of elation and anxiety the implications of France's new, enlarged military and artistic footprint in Abu Dhabi. On one hand, it will be a true joy to expand the French connection in the UAE's increasingly cosmopolitan urban landscape: it may finally be possible, for example, to get a halfway decent pain au chocolat along with one's daily naan. And while one may be justifiably sceptical about the deterrent factor of a Ligne Maginot in the Gulf, it will doubtless help alleviate one of the long-standing concerns of investors to know that an attack on the UAE is an attack on France. On the other hand, this does virtually guarantee a mini-invasion of Francophones vying with the SUVs for sidewalks on which to park their Peugeots and Citroens. They'll doubtless complain that the malls should be open air, rather than air conditioned. It seems only a matter of time, moreover, before this column is published entirely in French.
Oh well, c'est la crise. If the Anglo-American economic model wasn't so tattered, it might well have been Barack Obama, the US president, or Gordon Brown, the UK prime minister, standing in Mina Zayed port this week. Speaking of which, this week's column was originally intended to be written live at the Dubai-based Institute for Corporate Governance (Hawkamah) symposium on insolvency laws and creditor rights systems in the MENA region, held yesterday at the Hilton in Abu Dhabi.
Unfortunately, composing a column on-site for a modern newspaper requires wireless internet access, a convenience that the Hilton's business centre deems to be worth more than Dh200 (US$54.45) in value. While this may be true under the circumstances, this columnist refuses to pay high fees for something that in decent hotels has become as commonplace as lights and running water. Charging hotel visitors for Wi-Fi these days is like charging them to use the toilets. The Hilton's management, for the record, apologised, explaining that the fees were imposed by a third-party company that runs the hotel's business centre.
When a door closes, a window opens, they say. Had the Hilton's Wi-Fi been gratis, lunch would have been at the Hilton instead of KFC, where yesterday's Xtreme meal came with a free X-Men trilogy DVD box set. As exciting as this may be from the point of view of home entertainment, it also illustrates in an oblique way the importance of failure in an economic downturn. Without some failures, whether it be the sale of an exorbitant Wi-Fi service or the continued construction of inferior quality cars, it's difficult for an economy to carve up its least efficient industries and create from them new and more competitive opportunities. We've worried so much so far about how to insulate ourselves from the crisis, and how to minimise its impact, that now the crisis has hit us, we may be keeping the mortally wounded parts of the economy on life-support instead of letting them pass to make room for new businesses.
In a forest - something unfamiliar to these parts but which serves as a valuable analogy nonetheless - new growth is often crowded out by tall trees. Those towering conifers shade new saplings, killing them. When a fire comes and burns down some of the tall trees, they fall to the forest floor, letting in light for the new saplings and providing a source of nourishment to new growth. Economies need to undergo the same process of renewal. In Japan's so-called "lost decade" there was, amid the zombie banks and petrified conglomerates, a constantly emerging "green shoot" economy of small businesses and entrepreneurs. But the failure of the government to let banks and companies fail fast enough suffocated many of these new sources of demand and investment, thereby prolonging Japan's economic malaise.
The government bailouts undertaken so far have, by and large, been necessary rescues of institutions whose failures would have caused politically unacceptable damage. While in the early stages of the financial crisis there were free-market adherents who called for the US government to let the likes of Citigroup or AIG succumb to whatever ailed them, there were few economists who by last autumn didn't agree that the system needed propping up, however rotten it may have become. Likewise, no one would fault the Central Bank for financing Dubai's $10 billion rescue fund: Dubai is simply too vital for the nation not to help it out.
The UAE is fortunate that it was better insulated than most economies from the crisis. Unlike other governments that now find themselves so deeply in debt that they are being forced to raise taxes and cut spending during a deepening recession, the UAE has enough reserves and assets to sustain a budget deficit for several years, and even to pay off all its own debt and the debt of government-related entities at face value. But that doesn't mean it should. Many borrowers worldwide are going back to their bankers and asking for new deals, lower rates or longer repayment periods - even reductions in their overall loan amounts. For governments, asking creditors to renegotiate or restructure loans can damage their creditworthiness for years. But for companies and individuals, renegotiating a loan is a normal part of doing business. It forces creditors to shoulder their portion of the risks they underestimated and even fed during the credit bubble.
It also sets in motion the process of economic renewal. Some companies will default, their debts will be turned into equity, and they will be carved up. Some banks may take losses and be forced to consolidate with their rivals. In this way, the economy is reborn and can emerge from the global recession in much stronger shape. Without robust insolvency laws and bankruptcy courts trained and ready to move these failures through the system rapidly and without time-consuming litigation, however, this process can be slow and agonising, as it was in Thailand and Indonesia after the Asian financial crisis. According to the World Bank's annual Doing Business report, however, it still takes an average of more than five years to wind up an insolvent company in the UAE.
Hawkamah's report on insolvency and creditor rights, therefore, represents an important step forward, and its declaration calling for improved legal regimes on insolvency and bankruptcy around the region should be taken up as a policy priority. firstname.lastname@example.org