For years, Dubai seemed unstoppable, an oasis of excess boasting indoor ski slopes and manmade islands, the world's tallest tower and dreams that reached even higher.
Now the bills are coming due, and the emirate's debt problems are tarnishing a place built on borrowed time and money — and threatening to spill into other Gulf Arab nations.
State-owned conglomerate Dubai World's call for a delay in repaying some of the $60 billion it owes creditors will likely make international investors view even more fiscally conservative countries through a lens of uncertainty, analysts say.
The announcement is "impacting everybody in the region — the good and the bad," said John Sfakianakis, chief economist at Saudi-based Banque Saudi Fransi-Credit Agricole Group.
"Right now we're still seeing the impact of this, and the impact will be that everybody is being negatively perceived," Sfakianakis said.
In Dubai and in other Gulf nations, rulers keep tight control over information on their fiscal standing and dealmaking even as they draw in hundreds of billions of investment dollars.
For example, in Saudi Arabia, the Arab world's largest economy, few were aware of the $22 billion debt crunch confronting two of the kingdom's largest privately held conglomerates earlier this year. The news filtered out as the companies fought each other in court, with one accusing the other of fraud.
While international investors were once willing to gamble on Gulf countries, largely because of their oil wealth, the global financial meltdown made them less willing to take risks. The Dubai crisis will only heighten those concerns, analysts say.
"Foreign investors will sharply divide the way they recognize investment opportunities in the Gulf based on which countries have oil and which don't," said Simon Henderson, a Gulf energy specialist at the Washington Institute for Near East Policy.
Unlike Saudi Arabia, Qatar or even Dubai's neighboring emirate, Abu Dhabi, Dubai lacks oil wealth. The government-backed entities known as Dubai Inc. tapped credit markets to engineer the city-state's spectacular growth.
Over the past decade, the tiny emirate, one of seven that make up the United Arab Emirates, transformed itself into a regional financial hub, a magnet for tourists and foreign workers.
It constructed high-rises with stellar Persian Gulf views and an indoor ski slope, and offered a freewheeling lifestyle frowned upon elsewhere in the UAE, as well as the region. A manmade island shaped like a palm frond beckoned. Dubai boldly built the world's tallest skyscraper, Burj Dubai, set to open in January.
The global credit crisis derailed the dream. Property prices have plunged by 50 percent since last year. Projects were canceled, and expatriate workers left en masse. Today, buildings sit unfinished, apartments unsold or empty.
Dubai World's announcement that it was seeking at least a six-month delay in paying back its debt sent shock waves around the world Friday. Oil prices dived to near $74 per barrel, and Asian markets tumbled for the second consecutive day. In the U.S., the Dow Jones industrials lost more than 150 points.
Dubai's overall debt load is seen as at least $80 billion, underscoring how grave Dubai World's announcement was for the emirate's financial health.
Later comments by one of the emirate's top financial officials that the call for a delay was a "sensible business decision" and "carefully planned" did little to mitigate the damage.
Henderson said it was "an extraordinarily arrogant decision," made public on the eve of Thanksgiving in the U.S. and just before a three-day Islamic feast.
"It's impossible they don't realize this will be taken as a personal insult by the world's financial community," Henderson said, adding that it would not be surprising if creditors were unsympathetic.
Fears about the debt problems were compounded by lack of detail provided by Dubai authorities. The announcement also raised worries that reassurances provided by Dubai over the past few months were just an attempt to hide the magnitude of the problem.
"When people don't know what the extent of the problem is, their concerns deepen," said Jane Kinninmont, a London-based specialist on Gulf economies at the Economist Intelligence Unit. Kinninmont said that there is a "real shortage" of economic data to assess the recession's impact on Dubai.
Two Abu Dhabi majority-owned banks had already bought up $15 billion in Dubai bonds as part of a $20 billion program earlier this year. Analysts are concerned that Abu Dhabi may not back all of Dubai's assets, and that international lenders will take a second look at investing there and in other Gulf countries with a history of a lack of transparency.
‘A new financial crisis’
Already, the effects have begun to surface. Standard & Poor's downgraded its ratings of several Dubai government-related entities, linking its decision to the Dubai World announcement.
"In our view, such a restructuring may be considered a default under our default criteria, and represents the failure of the Dubai government to provide timely financial support to a core government-related entity," said S&P analysts.
Elsewhere in the region, Bahrain-based Gulf International Bank said it was delaying a sale of $4 billion in five-year bonds that had already garnered 60 orders, pinning its decision on Dubai and the "best interest of investors participating in the deal."
The latest news is at the very least a wake-up call to investors, analysts say.
"Dubai's current problems are a long overdue consequence of the bursting of the global property bubble rather than the start of a new financial crisis," analysts at Capital Economics concluded in a research note Friday.
Analysts said they were troubled by Dubai's apparent determination to downplay its financial predicament.
Dubai's ruler, Sheik Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state's liquidity and denied for months that the economic downturn even touched the glitzy city-state. Two months ago, he told Dubai's critics to "shut up."