In the Persian Gulf Region, Investors Relax a Little

By Ellen Knickmeyer
Washington Post Foreign Service
Wednesday, October 15, 2008

DUBAI, United Arab Emirates, Oct. 14 -- It was, one investment broker said here Tuesday, occasion for a couple of beers, but not for popping open champagne.

Arab and international financial leaders in Dubai, the dealmaking hub of the Arab Middle East, allowed themselves to relax a little Tuesday, voicing hope that the intervention of governments worldwide had averted global economic collapse.

But local and foreign financial leaders here were mindful that economies still could be headed into a long recession, and no one was celebrating, they said.

"This was a situation where, if the governments had not acted in the swiftest and boldest way, it would have had an effect that in our generation would have been unimaginable," said Stephen Schwarzman, chairman and chief executive of the Blackstone Group, the world's largest leveraged-buyout firm.

Schwarzman and the others spoke at a gathering of private-equity leaders who came to the Persian Gulf area to compare notes with each other and to court the region's sovereign wealth funds, which hold an estimated $1.5 trillion in oil proceeds.

Even if markets and banks continue their recovery, the financial wounds of recent weeks will linger for years, said Guy Fraser-Sampson, an expert in private-equity investment.

"The first world war cost a generation of men. This past month or so cost a generation of capital," Fraser-Sampson said.

"Two generations," interjected John C. Baker, head of New York-based Baker Capital.

Dubai, one of seven emirates in the United Arab Emirates, is the city that leverage built. Dubai's ruler has used the emirate's comparatively modest oil reserves to transform the state into a financial, trade and tourist hub.

The pace of building here outpaces that of Asia. Driving across Dubai now takes more than an hour, almost all of it spent passing bank towers, malls, gold and diamond trading centers, and hulking skyscrapers that were not here a decade ago.

All the building meant Dubai's government debt outweighed its gross domestic product, Moody's Investors Service warned on Monday.

Dubai's dealmakers largely shrugged off the news, they said, confident that the United Arab Emirates' rulers would use oil wealth to rescue Dubai from any trouble.

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