Just when it looked like the financial crisis is slowly becoming a memory, here comes another reminder of how fragile the global recovery truly is. Everyone knew Dubai was in trouble due to the global downturn, but still no one expected them to ask for a "standstill" on paying back about $60 billion debt till May 2010.
The global downturn had derailed Dubai's explosive growth and the city was in trouble since the start of the year. Dubai woes were so bad that in February, it had to arrange a bond sale to the United Arab Emirates central bank for $10 billion. The hastily arranged bond sale was a bailout by Dubai’s oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates. However it seems that even Abu Dhabi is getting worried about the debt of Dubai as in total, Dubai state-backed networks (called Dubai Inc.) are about $80 billion in the red.
Dubai is now so swamped in debt that people are wondering if even a six-month reprieve on paying its bills would be enough. Despite saying that Dubai's move to suspend payments on its Dubai World conglomerate's debt was "carefully planned", there is an air of desperation in the announcement. Dubai's ruler, Sheik Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state's liquidity since the start of the year and even assured reporters in September that Dubai is not worried about their debt situation.
So much for that.
The only thing "carefully planned" was the timing of the announcement, on the weekend of Thanksgiving and the Haj but even then the sudden ‘standstill’ order shook world markets with Europe dropping 3% after the announcement and America opening 2% down after the Thanksgiving holiday. Now everyone is waiting for Sheik Mohammed to come out with a recovery plan to salvage Dubai World; if he fail to come up with a recovery plan that will be respected, we might be in for another financial tsunami.