Dubai risks retreating into its past rather than facing its new reality. The Gulf emirate needs to overhaul its state-controlled companies if it is to overcome its $80 billion debt mountain. Yet rather than seize the opportunity for reform, the people whose poor judgment led Dubai to the brink have kept their jobs. For Western lenders, that is troubling.
Take Dubai World, the conglomerate that has just been radically restructured after running up almost $60 billion of liabilities on ill-judged acquisitions like struggling Madison Avenue retailer Barneys and the Queen Elizabeth II liner, which has since largely languished in a Dubai dry dock.
Surprisingly, senior management remains in place, including Sultan bin Sulayem, the chairman who masterminded the expansion. Holding senior Emirati officials responsible will be tricky. The Sulayem family's ties to Dubai's ruling Maktoums run deep. Mr. Sulayem's father was a key adviser to the family. The same is true of many other of the emirate's business leaders with reputations damaged by the crisis.
Western lenders would rather see experienced executives running Dubai's companies, held accountable by independent boards and creditors. Yet Dubai's ruler, Sheik Mohammed bin Rashid Al Maktoum, appears to be heading in the opposite direction, possibly handing more power to his sons. This could mean a bigger role in Dubai's corporate affairs for the popular but inexperienced 26-year-old Crown Prince Hamdan. The scale of Dubai's financial woes, however, means painful change can't be resisted forever. Easy credit allowed officials like Mr. Sulayem to build Dubai World into a truly international company. In the future, banks will demand greater transparency in return for capital.
Write to Andrew Critchlow at andrew.critchlow@dowjones.com
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