Dubai property developer Nakheel—part of the debt-laden Dubai World conglomerate—announced on November 26 that it is seeking to suspend trading of its Islamic bonds, the NASDAQ Dubai bourse said. Dubai World asked creditors for a six-month "standstill" on its debt repayment, including $3.5 billion in Nakheel bonds that mature on December 14. Will this new financial problem in the Middle East cause more damage to the still-struggling world economy? Tao Dong, an economist specializing in Asian affairs at the Hong Kong-based Credit Suisse First Boston, offered insights on his blog on November 29. Edited excerpts follow:

The letter "D" has stunned the world financial market once again. This time it is not focused on the word "depression" nor "dollar," but Dubai—one of the seven emirates of the United Arab Emirates (UAE) and an emerging world financial center. Crude oil touched a six-week low, while gold prices tumbled and the dollar climbed as worried investors sought safe havens.

From my point of view, the debt crisis in Dubai will not be the prelude for a new round of global financial challenges. European banks have 13 billion euros ($19.6 billion) in related business to debt-laden Dubai, according to Swiss lender Credit Suisse. In this sense, even though the European banks were the major creditors, their investment in the region constituted only a small part of their total loans worldwide. What is more, to date, we have not been informed that any financial derivatives have contributed to the potential Dubai World default.

As we all know, the UAE is the world's third largest exporter of oil and one of the richest countries in the world with surplus funds totaling over $700 billion. For this reason, the UAE has enough cash available to pull Dubai World out of its current predicament.

Ever since the outbreak of the global financial crisis last September, governments across the globe have been capable of using all sorts of bailout plans and preventive measures. Based on the above reasons, the debt crisis in Dubai is an isolated incident bearing no significance to the global economic recovery.

Currently, it is too early to tell what the consequences will be. Three major factors may exert their influences:

First, when the debt suspension was released, traders in Western countries were busy with Thanksgiving festivities, while Middle East traders were away for the Eid Al-Adha holiday marking the end of the annual Muslim pilgrimage to Mecca. We have to wait to see if there is going to be a run on the banks in Dubai as traders return from major holidays in both the United States and the Middle East.

Second, it is uncertain if Dubai World is the only company involved in the debt crisis. We also cannot rule out future possibilities of financial difficulties for other entities.

Third, we cannot tell whether market speculation has wrapped up or will continue for some time to come.

The debt crisis in Dubai has demonstrated that the foundation of the global economic recovery has not solidified and may postpone the withdrawal of stimulus measures that have been taken by governments from all countries in response to the world financial crisis. In this sense, I believe excess liquidity will continue to prevail all over the world for quite some time.