- Associated Press - Tuesday, November 30, 2010

DUBAI, United Arab Emirates | It was the celebrity endorsement of marketers’ dreams.

Before harnessing up to film stunts for the next “Mission: Impossible” movie on the face of the world’s tallest tower, Tom Cruise bounded onto the stage in the skyscraper’s plush new Armani Hotel to promote shooting in Dubai. With cameras rolling, he thanked the emirate’s ruling sheik and praised the city as “very cinematic,” deeming it “beautiful” four times in less than a minute.

Publicity stunt it may have been, but the filmmakers’ decision to set a large part of the movie here also reflects the headway Dubai has made on its own tough mission: to again charm investors and repair its reputation a year after its market-rattling financial crisis. It’s a task that could take years to complete.

The pint-sized Persian Gulf emirate sent tremors through the world economy a year ago last week when it effectively acknowledged it couldn’t repay billions of dollars as promised.

Lenders who had relied on government backing for the conglomerate Dubai World and a web of other state-linked companies found no such guarantees, leaving them scrambling for details from a city-state as famously tight-lipped as it was opaque about the health of its globe-trotting businesses.

Almost overnight, Dubai went from being seen as the Arab world’s glamorous answer to Wall Street and Las Vegas to a city-sized subprime borrower with way too many maxed-out credit cards.

A year on, both of those conflicting images contain a measure of truth.

“Across the board, we’re probably better off than we were a year ago in Dubai,” said Rachel Ziemba, an analyst at Roubini Global Economics. “But the recovery of the Dubai economy is going to be a lot slower than people anticipated.”

Topping the list of challenges is more than $100 billion in Dubai debt still hanging over bank balance sheets from Tokyo to New York. Some state-owned holdings have been quietly sold off. Others are struggling. Late last month Loehmann’s, an 89-year-old U.S. clothing retailer owned by the emirate, filed for bankruptcy protection.

Bankers grumble that financial transparency is still lacking - an indication of a lesson not completely learned. Though Dubai has begun to crack open its books, the full extent of its debt problems - and its ability to fix them - remains unclear.

Even the half-mile-high Burj Khalifa down which Mr. Cruise rappelled isn’t immune. Apartment owners there have had to slash rents amid a property slump that shows few signs of improving. Across the city, prices have plunged by half since late 2008 as tens of thousands of residents - mostly foreigners who make up the overwhelming majority of the population - have lost their jobs and left.

A glut of new homes planned years ago and soon coming to market could make things even worse.

“We’ve still got a bit more to go before we hit the bottom,” said John Davis, regional chief executive of the real estate firm Colliers International.

The debt pile and property woes don’t mean Dubai is done for, however.

The sheikdom in many ways has proved surprisingly resilient, using the past year to clean up some of its worst excesses as investors’ concerns shifted to struggling European debtors such as Ireland and Greece.

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