Dubai, the Arab world's glittering, golden embodiment of capitalism, is broke. On Nov. 25, the emirate announced it would postpone payments on some of its $80 billion in debt, sending markets into a tailspin.
While Dubai's origins are largely a mystery, what is now a Rhode Island size principality on the Persian Gulf was just a pearl-fishing village when its current rulers, the Maktoum family, took over in 1883. Along with those of other Arab emirates, its fortunes changed abruptly in 1966 with the discovery of oil. But compared with its neighbors, Dubai had limited reserves, prompting its rulers to turn to other industries to fuel their bold economic aspirations. Starting in the 1980s, at the prompting of Sheik Mohammed bin Rashid al-Maktoum, then the crown prince, Dubai fashioned itself into a free-trade oasis. It opened a tax-free infotech hub, Dubai Internet City, in 2000, to attract technology companies; media, finance and maritime projects soon followed.
Thanks to massive spending (and borrowing) by its state-owned development companies, Dubai was soon every inch the global financial center. It's home to the sail-shaped Burj al-Arab, the most expensive hotel in the world, and the unfinished 160-story Burj Dubai, the planet's tallest building. Its coastline has sprouted archipelagoes of man-made islands shaped to represent a date palm and a map of the world.
But Dubai's heavily leveraged business ventures couldn't withstand the ever souring economy. In 2008, real estate prices dropped 50%; new construction all but stopped. Sheik Mohammed has downplayed the rising debt, which some estimate to be more than 100% of GDP. Despite a $15 billion bailout from Abu Dhabi, the bills are still mounting. Unless they're paid off, it looks as if Dubai's vision of becoming a desert Singapore may be just a mirage.