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The Art of the "Impossible"

Oct 1, 2002

Brazil's economic crisis is in full swing, with the currency in free fall and the economy ready to plunge into a severe recession. It seems inevitable that Brazil's large and structurally unsound debt must be restructured. Only a confidence shock that would boost the value of the real and bring interest rates crashing down could avert this outcome. The good news is that Brazil's economic problems are mainly, if not entirely, homegrown. Local investors hold most of the government's debt, which is mainly short and medium term, and denominated in reais, although tied to the exchange rate or overnight interest rate. The incoming government's economic team could impose a reasonably creative and market friendly solution...

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