Alternative Fix

def countSpaces(str):
    for i in range(0, len(str)):
        if str[i] != ' ' and str[i] != '\t':
            return i
    return len(str)

def addAll(lines, at, out, lastIndent):
    while at < len(lines):
        indent = countSpaces(lines[at])
        if indent > lastIndent:
            out.append(' ' * lastIndent + "{")
            at = addAll(lines, at, out, indent)
            out.append(' ' * lastIndent + "}")
            at = at + 1
        elif indent == lastIndent or indent == 0:
            out.append(lines[at])
        else:
            return at
    return at

lines = open('data.txt').read().split('\n');
output = [];
addAll(lines, 0, output, 0)
for line in output:
    print line