Falling Dollar, Inflation Feed Dubai Strife

DUBAI, United Arab Emirates -- In this oil-fueled boomtown, which runs on imported labor, the dollar's sharp tumble is contributing to civil strife.

In recent days, thousands of expatriate construction workers walked off job sites to protest low pay and the rising cost of living. Law-enforcement officials -- who typically play down the scope of labor actions here -- have acknowledged widespread protests, isolated violence and dozens of arrests.

Sporadic, small-scale strikes are nothing new in Dubai, where hundreds of thousands of low-paid laborers are building a soaring skyline and live in camps on the outskirts of town. After criticism by human-rights groups, officials launched a high-profile campaign to clean up labor practices.

But officials are finding it more difficult to deal with what has increasingly become one of the workers' chief complaints: A weak dollar, coupled with rampant inflation, means it is hard to send enough money home to make it worth sticking around.

Dubai is one of seven emirates that make up the United Arab Emirates. Like most of the oil-rich Persian Gulf, the UAE links its currency to the dollar. With oil production dwindling, Dubai has diversified its economy, trying to remake itself as a regional hub for entertainment, tourism and financial services. It relies on imported workers for almost all of its construction and menial-labor needs.

Workers have long flocked to the Gulf's relatively high-paying construction jobs. They typically work here for years and send remittances to relatives back home, often in India, Pakistan or poor countries in Southeast Asia.

The World Bank estimates that $20.75 billion in remittances was sent in 2006 from the four Gulf countries for which it has numbers: Bahrain, Kuwait, Oman and Saudi Arabia. Remittance data are difficult to track, and other estimates put outflows from the Gulf much higher. When the dollar falls against home currencies, those remittances don't go as far.

At the same time, soaring domestic demand for such things as housing and imports has stoked inflation across the Gulf. Because of its dollar link, the UAE's central bank typically can't use monetary levers, such as raising interest rates, to battle inflation. The UAE's inflation rate was 9.3% last year and is expected to be around 8% this year, according to the International Monetary Fund.

Officials at the Ministry of Economy acknowledge the double-barreled threat of a falling dollar and inflation. Kuwait decoupled its currency from the dollar earlier this year to help fight inflation. UAE officials say they are studying the issue, but there are no plans to revalue the currency.

"At this moment, we are still seeing that linking the currency with the dollar is the best option," says Abdulla bin Ahmed al Saleh, the ministry's undersecretary for economics. He says new housing expected to be finished in coming months will help ease the UAE's soaring cost of living, and foreign direct investment continues to flood into the country. Mr. al Saleh also says employers are increasing salaries.

But many workers say the increases aren't keeping up. This summer, Jassa Singh, a skilled carpenter from India, was making about 900 dirhams ($250) a month working for Commodore Contracting Co., a construction and contracting firm based in the neighboring emirate of Abu Dhabi. He said he watches the dirham-rupee exchange rate closely to gauge how much he can send home to his family in the Punjab region.

About eighteen months ago, one dirham bought 12.5 rupees. Since then, the dollar has weakened against the rupee, and therefore so has the dirham. Now the dirham is worth 10.7 rupees. "If it goes to eight rupees, we go [back] to India," Mr. Singh said.

Tens of thousands of menial laborers have taken advantage of a summer-long amnesty for illegal workers here, agreeing to either legalize their residence status or leave the country. In recent interviews, officials at the ministries of economy and labor say there is no sign of an impending labor shortage. Plenty of workers are eager to come into the country to take the place of leaving workers, they say.

But workers' frustrations are rising. Over the weekend, workers walked off the job and rioted at several sites in and around Dubai. A police spokesman declined to give specific numbers of workers involved, but said 4,000 workers were detained temporarily, and about two dozen face possible prosecution for alleged violence.

In one incident, construction laborers left a work site on the border of Dubai and Sharjah, a neighboring emirate, and staged a protest at their labor camp in Jebel Ali, a port district west of Dubai, according to executives for the workers' employer, Al Habtoor Engineering Enterprises Co., a large, regional contractor. The employees were demanding extra overtime, the executives said, but the company was prohibited by law from exceeding overtime limits set by the government.

The incident was quickly defused by police, Al Habtoor said, and the company was still discussing demands by workers, including the possibility of pay raises. The falling dollar and the UAE's high inflation rate are "universal" problems for workers here, one Al Habtoor executive said: "Some of the demands [of the workers] are reasonable, and some are not."