Brazil election faces Rousseff-Neves runoff

Brazil's leftist President Dilma Rousseff placed first in yesterday's election but did not get enough votes to avoid a runoff and will face pro-business rival Aecio Neves, who made a dramatic late surge to finish a strong second.

After Brazil’s most volatile campaign in decades, which saw one candidate die in a plane crash and another soar into first place only to collapse at the end, the result ended up being what was expected a year ago - a showdown between two arch-rival parties that have governed the country for the last 20 years.

Ms Rousseff will spend the next three weeks fending off an energized Mr Neves, a senator and darling of the investor community who blames her interventionist policies for a long economic slump and proposes free trade and tighter government spending.

Ms Rousseff remains a slight favourite to win, due to her party’s strong record of reducing poverty and creating jobs throughout its 12 years in power.

Seeking a second four-year term, she will also try to exploit a widespread perception that Mr Neves’ centrist Brazilian Social Democracy Party (PSDB), which governed from 1995 to 2002, is beholden to the rich.

In a speech on Sunday night, Ms Rousseff wasted no time lashing out at the PSDB as the party of “recession, spending cuts and unemployment.”

“The Brazilian people don’t want ghosts from the past,” she said in a hoarse voice.

With 99.9 per cent of votes counted, Ms Rousseff led with 41.6 per cent support compared to 33.6 per cent for Neves.

Marina Silva, a prominent environmentalist who had recently led opinion polls but wilted in the final days under a barrage of negative TV ads and doubts about her shifting positions on issues, came in third place with just 21.3 per cent of votes.

That provided Mr Neves, a popular two-term state governor and the grandson of a beloved politician from the 1980s, a window to present himself as a more reliable alternative.

Still, he immediately set out to woo Ms Silva’s voters, who will be critical to deciding the October 26th runoff.

At a raucous celebratory speech, he paused to remember the Brazilian Socialist Party's original presidential candidate, Eduardo Campos, who died in a plane crash on August 13th, prompting Silva to take his place. He also pointed out that combining his votes with hers would lead to victory.

"This feeling of change that is widely present in all of Brazil was already victorious in the first round," Mr Neves said.

Nearly 60 per cent of Ms Silva’s voters said in polls last week they would throw their support behind Mr Neves if he made it into the runoff.

But others who were drawn to Ms Silva’s more leftist past will be hesitant to support the PSDB, which implemented important but unpopular pro-market reforms when it ran Brazil from 1995 to 2002.

A nationwide poll by Datafolha released on Saturday showed that, in a runoff, Ms Rousseff would lead Mr Neves by a margin of 48 per cent to 42 per cent. Still, Mr Neves did much better than expected at the weekend and is within striking distance.

Mr Neves’ strong showing seems likely to spark a rally in Brazil’s stocks and currency today. Investors have in recent months bid up assets every time a change in government seems more likely.

“The next few weeks are going to be weeks of intense volatility in the markets,” said Paulo Rabello de Castro, chairman of SR Rating, a Brazilian rating agency. “But I really wish I had bought Brazilian assets last week.”

After growing at more than 4 per cent a year during a commodities-fuelled boom last decade, Brazil’s economy has averaged less than 2 per cent growth under Ms Rousseff and many on Wall Street and in Sao Paulo have made no secret of their desire for more market-friendly policies.

Andre Cesar, a political analyst, said Mr Neves appeared to have an even chance at victory. “(Neves) has turned into a very difficult adversary for Rousseff. He has gained muscle and a new energy,” Mr Cesar said.

Ms Rousseff counts on a bedrock of support among the working class, thanks to generous social welfare programs and the record of her ruling Workers’ Party in reducing one of the world’s biggest gaps between rich and poor.

Support from her predecessor Luiz Inacio Lula da Silva, who remains by most measures Brazil's most popular politician, will also boost her in the runoff race.

Yet others yearn for a change, pointing to poor health care and education services and infrastructure bottlenecks that have made Brazil one of the world’s most expensive and difficult places to do business.

Reuters