Oct. 3 (Bloomberg) -- Brazilian presidential candidate Dilma Rousseff will face Jose Serra in a runoff after failing to capture a majority of votes in today’s first-round election.
Rousseff led in the race to succeed President Luiz Inacio Lula da Silva with 46.8 percent after 99.6 percent of the ballots cast were counted in Brasilia. Former Sao Paulo State Governor and Health Minister Serra had 32.6 percent. Green Party candidate Marina Silva, who was third with 19.4 percent, didn’t declare her support for any candidate.
Lula’s former cabinet chief, who would be Brazil’s first female president, has vowed to maintain the social programs and the economic growth that has lifted 21 million people out of poverty since 2003. A corruption scandal involving members of her Workers’ Party has cut into her lead in the polls in the past two weeks, pushing her to an Oct. 31 runoff.
“I will confront the second round with a lot of drive and energy,” Rousseff told reporters in Brasilia. “I will have the opportunity to provide more details about my proposals to eradicate misery and ensure the country’s development with fast levels of growth.”
Under the 64-year-old Lula’s watch, Latin America’s biggest economy created 14 million jobs, the country won its first investment-grade rating, inflation remained within target in all but his first year and the benchmark interest rate was cut by more than half, to 10.75 percent from 25 percent. Economists see the economy expanding by 7.53 percent this year, the most since 1985, according to a central bank survey published Sept. 27.
Rousseff, who has never run for office before and joined Lula’s party on the eve of his 2002 victory, was named cabinet chief in March 2005. She oversaw the government’s Growth Acceleration Program, a 1.6 trillion reais ($933.1 billion) infrastructure drive, and a program to build 1 million homes for the poor.
“Economics just trumps everything else,” Michael Shifter, president of Washington-based Inter-American Dialogue, said in a phone interview.
Lula, after voting today near Sao Paulo, told reporters that Rousseff is in a “privileged” position should the race go to a runoff.
“I only regret that this is the first time I’m voting and my picture isn’t on the screen,” said Lula, who has been a presidential candidate in every election since democracy was restored in 1985.
The chance of a second round increased after media revelations of alleged influence peddling by family members of Erenice Guerra, Rousseff’s successor as Lula’s cabinet chief. Guerra resigned her post to defend herself against the accusations, which she said were unfounded.
Rousseff’s support in the second round is 51 percent compared with 37 percent for Serra, an Ibope poll yesterday commissioned by Globo TV and O Estado de S.Paulo showed.
Lula’s 85 percent approval rating is also boosting allies running in gubernatorial, Senate and lower house congressional races. Rousseff’s 10-party coalition should emerge with a stronger hold on Congress, said Albert Fishlow, a former deputy U.S. assistant secretary of state and author of an upcoming book on Brazil’s economy.
Rousseff’s party, known as the PT in Portuguese, could win as many as 15 seats in the Senate, making it the second-biggest political force in the 81-seat chamber, according to estimates by the Inter-Union Parliamentary Advisory Department, a Brasilia-based policy group that tracks legislative races. Currently it’s the fourth-biggest party, with nine senators, trailing coalition partner Brazilian Democratic Movement Party.
In the lower house, Rousseff’s allies could increase their majority to 366 of 512 seats, from 297 today, according to the Inter-Union Parliamentary Advisory Department. Regional polls by Datafolha and Ibope suggest that the 10 parties in Rousseff’s coalition are set to win in at least 14 out of 27 states.
“The PT is close to getting what it has long wanted, which is kind of a lock on the majority in Congress” said Fishlow. Such gains will allow her “to rally the troops for important votes,” he said.
Rousseff, 62, has said little during her campaign about how she will tackle challenges that include putting a cap on spending growth, reducing real interest rates that are the second-highest in the world and modernizing Brazil’s infrastructure to ensure faster growth.
Still, investors expect she will maintain the outgoing government’s policies, said Henry Stipp, who helps manage $98 billion of assets at Threadneedle Asset Management. Since Lula took office, Brazil’s annual inflation rate has fallen to 4.49 percent in August, from 17.2 percent, while the Bovespa stock index increased five-fold. The real strengthened 110 percent against the U.S. dollar during the same period, the best-performance among major currencies in the world.
The extra yield investors demand to own Brazilian dollar bonds instead of U.S. Treasuries narrowed to 203 basis points on Oct. 1 from a nine-month high of 251 on June 8, according to JPMorgan Chase & Co.’s EMBI+ Index. That compared with the average 274 basis points for developing nations.
“The market is a little bit complacent, giving the benefit of the doubt to see what happens when she comes into power,” Stipp said in a phone interview from London. “The market has not priced in any risk with Dilma.”
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