After months of increasing volatility and a crashing
currency in Brazil, the International Monetary Fund signed
off on a $30 billion rescue package for the beleaguered
country. The World Bank and the Inter-American
Development Bank also came through with $3 billion in
emergency financing. The real, Brazil's currency, and
government bonds came under severe market pressure in July and
August, driving up the size of the government's debt and
forcing the authorities to reduce the debt's maturity
structure. This further undermined investor confidence with the
approach of October's presidential elections, which the
government's candidate is likely to lose. Moody's downgraded
Brazil's foreign currency bonds to B2 from B1, further
increasing fears that the country would have to default on its
$287 billion public debt, just as Argentina did in December
2001. The IMF rescue package revived markets only briefly as
markets remained convinced the incoming government would be
forced to restructure its debts....
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