After months of increasing volatility and a crashing currency in
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
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