The devaluation of Brazil's currency, Latin America's latest saga, is also weakening its stock market and taking down shares of Brazilian companies that trade in the U.S.
On Tuesday, Brazil's real was trading at 3.26 per U.S. dollar, its worst level in eight years. At the same time, Brazilian stocks Telebras (TBH), Petroleo Brasileiro (PBR - Get Report), Unibanco (UBB), Compania Energetica de Minas Gerais (CIG), Tele Centro Oeste Cellular (TRO) and Telesp Celular (TCP - Get Report) each touched fresh 52-week lows.
The currency drop comes amid a number of political and economic uncertainties in the country. "It is a bleak picture," said Clyde Wardle, an emerging-markets currency strategist at HSBC.
Ahead of elections in October, markets are nervous about instability resulting from an opposition win. Recent polls have shown the left-wing candidate, Luiz Inacio Lula da Silva, and center-leftist, Ciro Gomes, ahead of President Fernando Henrique Cardoso's market-friendly candidate, Jose Serra.Meantime, Brazilians are hoping for an IMF loan to prevent further currency destabilization. Brazil sent two officials to Washington on Tuesday to negotiate a package before the elections. Comments over the weekend from Treasury Secretary Paul O'Neill quashed some optimism for a deal. O'Neill said on Sunday that the U.S. had no plans for new aid to Brazil, and he expressed concern about assistance ending up in Swiss bank accounts. His statements led to the real's plunge this week. But on Tuesday the Bush administration came to the defense of Brazil, saying it would support international aid. "Brazil is an important friend and ally, and this president and this administration has great confidence in Brazil and its economic team," said White House spokesman Ari Fleischer on Tuesday.