Debt-swamped Dubai today asked for a six-month reprieve on paying its bills, causing a drop on world markets.
The fallout came swiftly after yesterday's statement that Dubai's main development engine, Dubai World, would ask creditors for a "standstill" on paying back its 60 billion dollar debt until at least May.
The company's property arm, Nakheel - whose projects include the palm-shaped island in the Gulf - shoulders the bulk of money due to banks, investment houses and outside development contractors.
In total, the state-backed networks nicknamed Dubai Inc. are 80 billion dollars in the red and the emirate needed a bailout earlier this year from its oil-rich neighbour Abu Dhabi, the capital of the United Arab Emirates.
Markets took the news badly - with the Dubai woes and the continued fall of the US dollar giving investors twin worries.
Dubai became the Gulf's biggest credit crunch victim a year ago. But its ruler, Sheik Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state's liquidity and claims it overreached during the good times.
When asked about the debt, he confidently assured reporters in a rare meeting two months ago that "we are all right" and "we are not worried," leaving details of a recovery plan - if such a plan exists - to everyone's guess.
Then, earlier this month, he told Dubai's critics to "shut up."
After months of denial that the economic downturn even touched it, the Dubai government earlier this year showed signs of trying to deal with the financial fallout that has halted dozens of projects and prompted an exodus of expatriate workers.
Last week, Sheik Mohammed demoted several prominent members of Dubai's corporate elite and replaced them with members of the ruling family, including his two sons, one of whom is his designated heir.
Businessmen who fell out of favour were closely associated with Dubai's phenomenal success. They include the head of Dubai World, Sultan Ahmed bin Sulayem, and Mohammed Alabbar, the chief of Emaar Properties, developer of the Burj Dubai and hundreds of other projects.Reuse content