When the 818-meter Burj Dubai tower, the world's tallest building, opened for occupancy with lots of fanfare on January 4, it was proclaimed to be a crowning achievement of the emirate of Dubai, with its bold plans to establish itself as a regional trade and services hub. The $4 billion tower included an Armani hotel, an observation deck, homes, offices and more, and was nothing less than "a symbol of Dubai's can-do spirit," according to the building's owner, state-owned Emaar Properties.
Among Dubai's creditors, though, the can-do spirit is wearing a little thin. Last November, Dubai World, one of the largest government-owned conglomerates, announced it would not meet billions of dollars of debt repayment obligations. In response, credit ratings agencies such as Moody's and Standard & Poor's downgraded the debt of several Dubai government-related entities to junk. "Dubai's corporate landscape is now effectively a high-yield market," Moody's wrote in a December note to clients. In mid-December, Abu Dhabi threw a $10 billion lifeline to Dubai -- but the latter is still saddled with debts of nearly $100 billion, which it must face squarely in the coming year.
Dubai's problems are not the only woes among the economies of the Middle East. Last summer, two vast family-owned conglomerates in Saudi Arabia defaulted on billions of dollars of debt repayments, highlighting lack of transparency and lax lending practices in the region. And in the past year or so, some $500 billion of planned infrastructure projects in the Gulf have been abandoned or temporarily halted as funding has dried up. Meanwhile, the Middle East's real estate market has slumped -- most notably in Dubai, where prices halved in the year following their August 2008 highs.
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