Dubai Woes May Escalate to ‘Major Sovereign Default,’ BofA Says

Lester Pimentel
Bloomberg News
Friday, November 27, 2009

(Bloomberg) — Dubai’s debt woes may worsen to become a “major sovereign default” that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said.

“One cannot rule out — as a tail risk — a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s,” Bank of America strategists Benoit Anne and Daniel Tenengauzer wrote in a report.

A default would lead to a “sudden stop of capital flows into emerging markets” and be a “major step back” in the recovery from the global financial crisis,’’ they wrote.

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