G7 monitoring Dubai fallout: Canadian finance minister

The Group of Seven countries has discussed the potential fallout on the global financial system from Dubai's delayed debt payments, Canadian finance minister Jim Flaherty said on Friday.

Flaherty, speaking to reporters, said the Canadian banking regulator sees little or no impact in Canada from Dubai's request for a standstill on payments of tens of billions of dollars of debt owed by conglomerate Dubai World, a move that has sparked debt default fears that have rattled global markets.

"There have been discussions, and we're monitoring the consequences of the credit issue relating to Dubai World," Flaherty said when asked if the G7 would issue a coordinated statement to quell currency volatility stemming from developments in Dubai.

Japan's finance minister raised the prospect of a joint statement on currencies after the US dollar tumbled to a 14-year low against the yen on Friday.

Flaherty said he was monitoring the situation closely, together with international colleagues and those at home.

"I spoke this morning with the superintendent of financial institutions, and we're monitoring the situation to be mindful of any knock-on effects that there might be in the Canadian financial system. It does not appear that there is any reason for concern in the Canadian financial system," he added.

The crisis began on Wednesday when Dubai, part of the United Arab Emirates federation, asked to delay payment on billions of dollars of debt issued by conglomerate Dubai World and its main property subsidiary Nakheel, developer of three palm shaped islands that have attracted investment from celebrities and the super-rich.

Flaherty echoed other global policymakers who said the credit difficulties showed it was too early to say the global economy had recovered from the financial crisis.

"There are still issues in the financial system...It would not be surprising to have other issues like this over the next several months because we're not out of the woods yet in terms of cleansing the global financial system," he said.                                           

Flaherty said he was also concerned about "excess liquidity resulting in some asset bubbles, potentially in Asia". He did not provide details.

Flaherty said he hoped gross domestic product in Canada for the third quarter, to be released on Monday, would be positive and that he expected entrenched growth next year.

Analysts in a Reuters poll forecast, on average, annualised third-quarter growth of just 0.6%, much weaker than the Bank of Canada's estimate of 2%.