Few thought it possible, but it appears Brazil will make it to next year without a Russia-like economic catastrophe. Brazil's reformist President, Fernando Henrique Cardoso, has won reelection, unveiled a much needed plan for reducing the budget deficit, and secured a $42 billion IMF bailout. The Sao Paulo stock index has climbed 26% since the polls closed Oct. 4, and equity strategists are once again talking about "great value plays" in Brazil. But the country is still in a lot of trouble. The recent turmoil, coupled with 42% interest rates, is plunging the world's eighth-largest economy into recession, with GDP forecast to contract as much as 3% to 4% next year. And the economy's downturn has once again raised a critical question: Will the country devalue its beleaguered currency, the real (pronounced ray-ALL), thought to be overvalued by 10% to 20%?
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