Linda Hearst comments on the emergent trend among Western journalists of predicting Dubai’s imminent demise. Her response? Any city that can emerge from essentially nothing to become what Dubai is today is not going anywhere, financial crisis or no.

… is that not funny?

Johann Hari of the UK Independent has an investigative journalism piece at the Huffington Post (are those two things a contradiction in terms?) that points out the flaws in Dubai’s sustainability long-term (or even medium-term). It’s a little melodramatic in its language, but raises some important points, primarily about the civil rights for foreigners and the damage that building a major water-consuming center in the middle of the desert does to the surrounding environment.

Yusuf Mansur suggests that Islamic banking, which, thanks to its rather stringent standards for money management, hasn’t suffered all that much from the current economic climate, should seize the opportunity to re-brand itself before recovery lulls people back to conventional banks. He recommends setting minimum standards for the entire Islamic banking industry and aggressively marketing it as a more prudent alternative to regular banks.

Along with this article, which is one of a series that this blog has noted on how now is the time for Islamic banking to become the next big thing, goes the article below on Dubai’s imminent restructuring. Taken together, these pieces seem to represent an attitude among Arab pundits writing in English about Arab financial systems (how is that for a specific group) that now is the time for Middle Eastern financial centers and systems to make their mark. Their arguments are imminently pragmatic, although I have to wonder if Islamic banking will really draw as many converts (banking converts, that is) as they anticipate. For one, the name ‘Islamic banking’ is going to turn people off for a number of reasons, some of them having to do with Islam specifically and others having to do with religion in general. More importantly, though, what these pundits seem to forget is that Islamic banking systems are reflective of a very old mentality. It is not risky, and that is its primary strength in these renderings. It is also necessarily not innovative, not sexy, and not unpredictable. Clearly risk levels need to be scaled back - even I, as an economic neophyte, think that is pretty clear. But if doing so is done under the banner of “a return to the banking systems of 700 A.D.” then it is going to be even less appealing than it is already. Calling it the prophet’s banking system may make good copy in al Sharq al Awsat but it is not going to draw a lot of new young bright employees. The re-branding Mansur advocates would have to be pretty aggressive.

Haed al Ghwell, professor at the Dubai School of Government, argues that the financial crisis should force Dubai toward greater transparency in governance and operations, ultimately situating it for greater success in the future. If the government of the cosmopolitan emirate chooses to heighten its secrecy and under-the-table atmosphere as a response to the tough times, then he would presumably predict a sluggish and incomplete recovery; alternatively, seizing this opportunity to implement a better governance system could end up a boon for Dubai.

Michael Slackman of the NYT attempts to explain the phenomenon of Muammar Qaddafi, whose stock is only rising as Libya slowly works its way back into the good graces of the international community and uses its formidable cash reserves to forge relationships with private equity firms. At least we can look forward to more photos like this one.

The LA Times had a piece yesterday on Lebanon’s thriving banking system. Riad Toufic Salame, the central bank’s governor, imposed very tight regulations on Lebanese banks during his tenure, and made it illegal for the banks to invest in mortgage-backed securities. Staying away from those investments has made Lebanon a safe investment - a pleasant change from its international image as a war zone/playground.

Interestingly, though the article initially explains Salame’s decision to regulate banks as an effort to curb the trend toward money laundering and overloose regulations in his country, he later describes his caution as a part of his Arab and Middle Eastern heritage:

When the real estate boom crested this decade and investors began bundling debt into nebulous financial instruments fueled by easy credit, the pressure was on for Salame to let banks take advantage of the high yields.

He says the mortgage-backed securities worried him from the start. He watched curiously as investment bankers engaged in what he calls “rituals” to please the credit ratings agencies and got back such safe assessments of their products. He didn’t get it. Why were these considered safe investments? They were just too complicated. They went against a major tradition in Lebanese and Middle Eastern banking: Know to whom you’re fronting cash and who’s going to pay you back.

There may be some truth to that statement, but I think it’s interesting that an initiative that was part of an anti money laundering regime is being framed as a return to Lebanese and Middle Eastern banking traditions. Also, the idea that knowing to whom you are fronting cash is a traditionally Middle Eastern idea suggests that lending money to nameless and faceless creditors about whom you know nothing is a long standing tradition in non-Middle Eastern banking, which isn’t the case. Fascinating how financial troubles are reformulated within the frame of a narrative about modernity vs. tradition.

It may not be as far-fetched an idea as it sounds. FP’s Elizabeth Dickinson discusses tourism potential in Iraq.

… according to a recent interview with economist Edward Sayre by Brookings scholar Navtej Dhillon. His overview of the Palestinian economy, with a focus on Gaza and its future, sheds some light on just how intractable a problem the “peace process” has become. Really fascinating reading.

According to the third installment in Brookings’ Food, Fuel and Finance series (I love the alliteration!), an interview by Navtej Dhillon with Heba Handoussa, Egypt has the potential to benefit from the global economic downturn provided it plays to its strengths - lots of small businesses, cheap labor, and an economical option for Mediterranean travel. The American lesson that an excess of deregulation (insufficient regulation - my 6th grade English teacher would have a heart attack over that double negative) is bad for the markets has the potential to inspire further regulation in markets - like Egypt's - that are already subject to heavy regulation. Excerpt from the interview:

Dhillon: In the U.S. and Europe, we seem to be reverting back to greater regulation of the financial sector. Doesn't Egypt need the opposite?

Handoussa: What is alarming is that, in the financial sector, the message seems to be to increase regulation because of what is happening in the U.S., which is exactly the wrong thing to do in Egypt. Mortgage and insurance lending, all forms of credit needs to be enhanced and deregulated. Egypt has one of lowest levels of lending in terms of micro lending or mortgage lending, and the attitude has always been one of reluctance within the banks. They are very risk averse. We just started to make a dent in the market for credit to SMEs and to house purchasers. Housing finance and microcredit is relatively new to Egypt.

I also want to say that, when you compare Egypt with what is now happening in the U.S. and some European countries‚ the banks have excess liquidity in Egypt. The ratio of credits to deposits in the banking system is only 55% as compared to an international norm of 80%. So it's not that they are safe, they are too safe.

One of the important takeaways from this series is the message it sends about tailored responses: it's my experience, as a relative finance neophyte, that most of the news on the crisis (at least in English) focuses on the importance of coordinated responses between the US and Europe. (I may simply be reading the wrong news, but that's my impression). The Brookings series elucidates the unique experiences of the different Middle Eastern countries. This is a case in which, clearly, though international donors and organizations could theoretically provide assistance to those populations who suffer the most from seismic shifts in the global economy, the best antidote is thoughtful and decisive responses by central governments that are made with thorough knowledge of their nations’ specific economic situation.

The second Food/Fuel/Finance interview, with Ragui Assaad, also by Nadjev Dhillon, presents a slightly less sanguine assessment of Egypt's financial situation at present.

The Brookings Institution's Middle East Youth Initiative is following the developments of the global economic whatever-we-are-calling it in a series called Food, Fuel and Finance: How Will the Middle East Weather the Global Economic Crisis? Slipping Oil Prices: is the Oil-Rich Middle East Prepared?, the first installment, offers a brief history of oil revenues over the last 20 years in the Persian Gulf. It's conveniently arranged in Q and A format, which helps if you are someone who (like me) feels a strong temptation to let their eyes glaze over when they start to see a series of words like “revenue” and “inelastic demand” one after another. Politics, however, always capture my attention, and I want to draw attention to one crucial point that the report makes in this arena:

For these countries, bringing their economies to a soft landing may prove much easier than managing the downsizing of expectations without a political backlash. Leaders in the region have offered scant warning to their citizens regarding the end of the petro-boom. Even after the global financial crisis had begun, mega projects were being announced in the GCC as if to defy the reality of what the global downturn will do the region's economies.

The Gulf countries’ generous spending has kept citizens relatively happy - textbook rentierism - and as spending is curtailed because of falling oil prices, there will be a backlash in public sentiment.

The one bright spot in all of this is that hard times make the case for policy reform more persuasive. The oil rich countries have a list of policy options before them, including reorienting education away from mere seeking of formal degrees toward acquisition of skills, transforming the search for government jobs into a search for careers in the public or private sector, and giving the youth a greater voice in shaping their own destiny.With the oil feast all but over, the time has come to set the incentives for the region's youth to become tomorrow's productive middle class.

This may be true. The relative weakness of the Gulf states’ militaries make total-police-state-mode to stifl uprisings unlikely. (Although this weekend's piece in the New York Times magazines drew some clear lines between the Emirates and Iran, and this wouldn't be first time the United States stepped in to contain a popular uprising against a government they consider convenient). It's naive, though, to think that threatened and weakened Gulf governments’ first responses will be to open up their political systems on their own. Egypt's Hosni Mubarak doesn't seem to have any trouble maintaining a corrupt and undemocratic regime on a shoestring budget. Bashar al Assad is still around. Ali Abdullah Saleh might control only a small corner of his country, but he's still president. Seeing political reform as an inevitable consequence of economic failure sounds to me like a “birth pangs of the new Middle East” argument. (To be clear, I don't think that's precisely what Salehi-Isfahani is arguing here). He's right that the case is more persuasive when the governments can no longer purchase their citizens’ loyalty. And the Gulf countries may arrive at that conclusion on their own. Then again, some may not. I would approach any framing of a global economic meltdown as an “opportunity” skeptically.