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A combination photo shows presidential candidates President Dilma Rousseff (left) of the Workers’ Party and Aecio Neves (right) of the Brazilian Social Democracy Party gesturing to photographers. Photo: Reuters
A combination photo shows presidential candidates President Dilma Rousseff (left) of the Workers’ Party and Aecio Neves (right) of the Brazilian Social Democracy Party gesturing to photographers. Photo: Reuters

Neves faces Rousseff in Brazil runoff after staging comeback

The incumbent of the Workers' Party had 42% of the votes on Sunday, followed by Neves of the PSDB, with 34% and Marina Silva with 21%

Brasilia/Sao Paulo: Aecio Neves pulled off a surprise second-place finish to force a runoff with Brazilian President Dilma Rousseff, pitting a candidate favoured by investors against an incumbent who says the end of her party’s 12-year rule threatens policies that pulled 35 million out of poverty.

The incumbent of the Workers’ Party, or PT, had 42% of the votes on Sunday, followed by Neves of the Brazilian Social Democracy Party, known as PSDB, with 34% and Marina Silva with 21%, Brazil’s Superior Electoral Court reported based on 99.99% of ballots counted.

“Those in the government lost their chance to make the country grow," Neves said on Sunday at a press conference at his campaign headquarters as supporters cheered outside. “They lost their opportunity to control inflation."

With combined support for the two main opposition candidates topping Rousseff’s, the final vote will be the most contested of the past three presidential elections, said David Fleischer, a professor of political science at the University of Brasilia. He estimates Neves has a 45% chance of winning, and analysts from UBS AG to Nomura Holdings Inc. say markets will rally on Monday on speculation Rousseff, who argued her policies protected jobs during a global crisis, won’t be re-elected.

Petroleo Brasileiro SA, the nation’s biggest oil company, rose 9.9% to €5.70 in Frankfurt trading at 9:33am on Monday. The volume of trading was 1,156 shares.

‘New ideas’

Rousseff will have to go beyond her strategy of trying to take down her adversary by telling voters he would undo social programs and adopt policies that would lead to a recession, Rafael Cortez, a political analyst at consulting firm Tendencias, said by phone on Sunday.

“We have new ideas for the economy," Rousseff told supporters in Brasilia on Sunday evening. “We’re going to control inflation even more, but without producing the so-called adjustments and unpopular measures—the wage squeeze and the unemployment—that we had during governments of the PSDB."

Silva in her concession speech last night said Brazilians voted against the government, expressing a desire for change. She said the parties in her coalition will discuss whether to endorse a candidate in the second round on 26 October.

“Brazil clearly signalled it doesn’t agree with what is there," she said.

More votes

For much of the year stocks rallied on falling support for Rousseff in opinion surveys as investors bet an opposition candidate would do more to improve Brazil’s business environment, bring down above-target inflation, and reduce deficit spending. Since 2 September, when the president’s popularity started rebounding in the polls, the Ibovespa index has lost 11.9% and the real dropped 8.7% against the dollar.

Neves received more votes than the 26% support he garnered in a Datafolha poll released on 4 October. Rousseff had 44% in the poll that had a margin of error of plus or minus two percentage points.

Financial markets will have a “very" positive reaction to Neves’s vote, Tony Volpon, managing director for emerging-markets research for the Americas at Nomura, said by telephone. Volpon said Neves became the favourite.

“My bet is that it’s still probably a Dilma win, but the market will celebrate the fact that Aecio may become the next president after all, and you’ll get a big rally tomorrow (Tuesday)," Geoffrey Dennis, the head of emerging-market strategy at UBS, said in a phone interview on Sunday. “How sustainable it is will depend on the polls."

Alternated power

Eurasia Group analyst Christopher Garman, who correctly predicted Silva would fall in polls when she was beating Rousseff in August, said markets will over-estimate the odds of Neves winning the final election. He says Rousseff is the favourite.

The PSDB and PT have alternatively been in power since 1995. Senator Neves, 54, draws his support from voters with higher incomes and more education, polls ahead of the vote showed. Rousseff gets most of her backing among lower income families.

Voters re-elected PSDB candidate Geraldo Alckmin as governor of Sao Paulo, the most populous state in Brazil. Fernando Pimentel of the PT won Minas Gerais, the second-most populous state. Brazilians also voted to renew all 513 seats in the lower house of Congress and one-third of the Senate.

Supporters danced

Neves, former governor of Minas Gerais, appealed to investors by pledging to slow inflation to the 4.5% target within two years and gradually lower the target to 3%. He said he would name former central bank president Arminio Fraga, who introduced inflation targeting in Brazil in 1999, as his finance minister to regain investor confidence.

Neves watched the results coming in from his apartment in Minas Gerais state capital Belo Horizonte. Supporters of the candidate danced outside of his headquarters in the city as results showed him heading to the second round.

“Brazilians are ready for change," said Carlos Martins, 59, a retired metal worker. “Brazil wants new blood."

The PSDB candidate pulled off a turnaround after Silva led him in polls going into the final week of the campaign. Once Silva became the candidate following the 13 August death in a plane crash of her running mate, she surged to a lead over Neves of as many as 19 percentage points in the first round, according to a Datafolha poll published on 29 August. Her ascent stalled after the PT began airing attack ads. Neves also jabbed at Silva by accusing her of inexperience and flip-flopping.

Renew policies

Rousseff, 66, said in Belo Horizonte on 3 September that she would renew her team and policies in a second term, without providing details. Government-led infrastructure projects will pave the way for economic growth in coming years, she said, pledging to build an additional 3 million low-cost houses, expand access of students to vocational training, and use state-run banks to subsidize consumer loans and investment projects.

The president watched the results come in from her official residence in Brasilia and met with members of her cabinet. Supporters in the federal capital gathered at a hotel near the presidential palace as her campaign jingle, describing Rousseff as a “brave heart" in the face of adversity, played over loud speakers.

Into recession

“People who vote for Aecio don’t understand his proposals," Felipe Arnaud, a 20-year-old veterinary student, said. “I don’t want a minimal state here. We need to have a bigger state and a moderated private sector in order to make the economy grow again, while providing opportunities for Brazilians with less resources."

While Brazil’s inflation hovers around the 6.5% upper limit of the target range and the economy slid into recession in the second quarter, unemployment at 5% remains near record lows.

During the 2003-2010 government of Rousseff’s mentor, Luiz Inacio Lula da Silva, Brazil’s economy averaged 4.1% annual growth to become the world’s second-biggest market after China. That pace slowed to an average of 2.1% in the first three years of her administration. Economists in the latest weekly central bank survey forecast growth of 0.29% this year and 1.01% in 2015.

Under Lula, the real strengthened more than 100%, the best performance among the 16 most-traded currencies tracked by Bloomberg, while the benchmark Ibovespa stock index rose more than sixfold. Since Rousseff took office on 1 January,2011, the currency has declined 32% and the stock index has lost about 21%.

Rousseff is still the favourite because as an incumbent she can implement measures during the campaign to build support, Fleischer said. In the run-up to the first round, the government announced a program to increase tax breaks for exporters and raised the number of low-cost houses it would build.

“It’s going to be a hot, nasty campaign," Fleischer said. Bloomberg

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