(RFE/RL) -- Dubai World is the state-run conglomerate which is largely responsible for transforming the small desert emirate of Dubai into a playground of the super-rich.
That just made the shock all the greater last week when the company announced it is asking creditors for a standstill on repayment of billions of dollars in debt. The total owed to investors is estimated at some $59 billion.
Nervousness immediately spread among high financiers that a potential collapse of Dubai World could touch off a new domino effect of creditor failures around the globe, particularly in Asia.
The new scare came as the developed countries in particular are hauling themselves out of the debt crisis that escalated a year ago with a series of big banking failures in the United States.
The worst moment in the Dubai scare came on November 30, when the Dubai government said it would not be responsible for Dubai World's debts.
That caused new shock waves, as creditors had assumed that the Emirate's government would stand behind its business arm as a guarantor of last resort.
But tensions began to ease overnight when Dubai World issued a statement saying it is already in talks with creditor banks about the orderly restructuring of $26 billion in debts. This indicates that the company is still in control of events, and can cope with the situation.
So it seems that the world has escaped serious disruption over the affair.
Mountains Of Debt
But experts warn that the financial horizon is still clouded by this very issue of massive corporate and government debt. "We're not out of this mess yet," says Neil MacKinnon, global strategist at the investment company VTB Capital in London.
He points to the overwhelming debt levels governments have taken on to bail out private sector banks and financial institutions.
"The financial markets are worried about government creditworthiness and there has been concern...given the cost of the bank bailouts and the impact that is having on budget deficits and on debt/GDP ratios, which have all risen sharply," MacKinnon says. "The bond markets in particular are worried about the risk of default, or certainly as we've seen with Dubai, problems relating to their ability to make their interest payments."
Corporations are also faced with a mountain of debt, with some $200 billion coming due for repayment this year or next year.
"The New York Times" today quoted investment specialist Gary Kleiman of Kleiman International as estimating that companies in Russia and the United Arab Emirates -- of which Dubai is a part -- account for about half of that borrowing.
These therefore are areas from which fresh trouble for the global financial system could emerge.
“The New York Times" further quoted the chief economist of the UralSib bank in Moscow, Vladimir Tikhomirov, as saying the Dubai debt restructuring will lift the cost of the debt repayments which must be made by Russian companies.
And MacKinnon in London warns that there are additional potential trouble spots emerging.
"It's not just Dubai that's the issue. There are concerns about some European countries," MacKinnon says. "Greece has been in the spotlight, given the deterioration in their budget deficits. There's also concern about countries like Ireland, Spain, the U.K.. The U.K. in particular has a very poor fiscal position at the moment, as does the U.S., so this could be a global problem particularly for those countries that were badly affected by they credit crunch."
Although global markets have shrugged off some of the immediate fears of contagion from Dubai, regional stock markets are sharply down again today.
Multimedia coverage on the impact of the global financial crisis on markets and individuals across RFE/RL's broadcast region. More