Dubai illustrates global economic fragility

The fragility of the global economic recovery has been underlined in the last 24 hours by reports, Dubai’s Government owned and controlled corporate lender, Dubai World, is to default on some $82 billion (US$60 billion) of debt.

“It shows the value of our dollar is impacted heavily by events in other countries,” says Don Nicolson, Federated Farmers President.

“While exporters will welcome what this has done to the New Zealand dollar, they won’t welcome the uncertainty it creates in global markets.

“The Kiwi is now at five-month lows against the Aussie and three-week lows against the Greenback. The cynics out there will say this has done more to lower the dollar than the most recent monetary policy statement.

“Washington-based Eurasia Group is now warning that with Dubai World going into default, it will have serious negative repercussions for Dubai's sovereign debt.

“If true, Federated Farmers fear is that this could be to sovereign debt what Bear Stearns was to financial markets. It’s a scary thought.

“This sends a message to our Government about the dangers of increasing debt at the rate of $413 a second. It will put New Zealand under the microscope but thankfully our economy is still based on the fundamentals of life.

“Our farmers produce real stuff like food and fibre that a growing global economy wants. The efforts of Kiwi farmers underpin every New Zealand family in these uncertain times.

“This is why all New Zealanders should support policies like water storage and research that will enable farmers to progress and oppose those that don’t,” Mr Nicolson concluded.