Clouds gather over Brazil

In 2003, Brazil debt easily outperformed the rest of the emerging market asset class, benefiting from the honeymoon period of new president Luiz Inácio Lula da Silva. But a rise in US interest rates and skepticism over Brazil’s economic policies have reversed progress. Ted Kim reports

Emerging market debt investors have traveled many a roller-coaster ride from near defaults to buoyant recoveries—and then back again. Brazilian bondholders are no exception. In the weeks preceding the October 2002 election of left wing president Luiz Inácio Lula da Silva, a former Trotskyite union activist, Wall Street feared the worst, sending Brazilian sovereign bonds plunging in price toward default levels. During his political campaign, Lula pledged massive government spending to rescue the