The announcement that the government of Dubai would suspend payment of debts incurred by its investment group, Dubai World, has rattled global markets, sparking fears of another dip in the global economy.
The chief concern is that the cash-strapped country, a member of the United Arab Emirates, could spark a similar move by other heavily indebted nations. That threatens to reverse progress that has been made in shoring up the balance sheets of the financial institutions that underwrote its profligacy. If they get the jitters, the rest of the world could feel the pain, as happened a year ago.
Located in the heart of the Persian Gulf, Dubai has little oil of its own. Instead, it relies on business savvy and investment acumen for its wealth, along with a thriving tourism industry. Operating through Dubai World, it developed eye-popping projects at home, like a giant island shaped like a palm tree and the world's tallest skyscraper, and bought some of the world's most visible companies and properties, ranging from golf courses in Scotland to casinos in Las Vegas. In the process, it racked up $59 billion in debt.