Friday, October 06, 2006

When victory spells defeat.

Lula is forced into an unexpected second round of voting.
from The Economist

UNTIL the final days of the campaign, Luiz Inácio Lula da Silva appeared to be heading for certain re-election as Brazil's president in the first round of voting on October 1st. Then he made Brazilians angry. Last month members of his Workers' Party (PT) were caught with 1.75m reais ($800,000) in cash—the price of a dossier supposedly implicating José Serra, candidate of the centre-left Party of Brazilian Social Democracy (PSDB) for the governorship of São Paulo, in a long-running corruption scandal. Rather than apologise or explain, Lula ducked the final televised debate with his rivals. The day before the vote, photos of the piled-up cash appeared in the media. Voters hit back. Lula's first-place finish, with 48.6% of the poll, is really a defeat. He now faces an unexpected second round against Geraldo Alckmin, a former PSDB governor of São Paulo, who came just seven points behind and way ahead in morale and momentum.

“Lula is still the favourite, despite the damage,” says Cristiano Noronha of Arko Advice, a political consultancy. The most recent poll, released before the vote, put Lula five points ahead in the second round, to be held on October 29th. Yet Mr Alckmin, who until a few months ago was barely known outside São Paulo and was seen as too bland to make an impression, now has a real chance to close the gap.

Born poor himself, Lula won over Brazil's poor masses by driving down inflation and expanding welfare. The poor north-eastern states voted overwhelmingly for him. Bahia, the most populous, surprised pollsters by evicting a governor allied to a political clan on the right in favour of one from the PT. But Lula did not please everyone. High interest rates and taxes and a strong real have held back growth, especially in the more prosperous south and the grain-growing centre-west. The fortunes of middle-class voters, those most apt to punish political corruption, stagnated. Lula appeared to have weathered a series of scandals that toppled his top advisers and the leadership of the PT, but the bungled attempt to smear Mr Serra reminded voters of his party's sorry ethical record. Mr Alckmin swept the south and the centre-west as well as winning his home state, which accounts for nearly a quarter of the electorate.

The second round is likely to be a clash of styles and accusations rather than one of ideas. Mr Alckmin is friendly to business and exalts efficiency in public spending. In São Paulo he reduced taxes, turned roads over to private management and expanded investment—accomplishments that largely eluded Lula during his first term. He correctly identifies Brazil's overgrown public sector as the source of the economy's low growth and is keener than Lula to promote private investment in infrastructure, partly by “rescu[ing] the role of regulatory agencies”, which Lula has undermined. Lula tends to boast about what the state has done rather than what it encourages the private sector to do. Financial markets greeted Mr Alckmin's strong performance in the election by pushing up prices of Brazilian assets on October 2nd.

Yet Mr Alckmin is at pains to reassure voters that he will not roll back Lula's social programmes, while Lula is reinventing himself as an apostle of public thrift. The finance minister, Guido Mantega, has promised lower taxes and a cut in the government's non-investment spending as a share of GDP. Both candidates are coy about just how they would cut spending, avoiding subjects like pension reform.

Neither will have an easy time managing the new fractious Congress. Just seven of the 21 parties elected to the lower house appear to have crossed the new threshold of votes required for committee assignments and a reasonable share of free television time. That will prompt mergers among remaining parties, accounting for perhaps a quarter of the 513 seats, and more than the usual number of defections by deputies to stronger groupings. The PT defied predictions that its congressional strength would fall sharply. If Lula wins it will seek to patch together a majority from other leftist parties, the bulk of the Brazilian Democratic Movement (PMDB), now the largest party, plus assorted others. Its overall support base will be roughly the same as it was in the outgoing Congress, though it has fallen a bit in the Senate.

Mr Alckmin's lower-house coalition, if he wins, would be based on the PSDB and the Liberal Front Party but would otherwise resemble Lula's. In such a legislature either candidate could, with the help of state governors, probably make economic progress. But “neither will have the conditions to approve big structural reforms,” many of which require constitutional amendments, says Christopher Garman, a political analyst.

If Mr Alckmin is to beat Lula he will have to attract the bulk of voters who backed third candidates, especially Heloísa Helena, a left-winger expelled from the PT, and to peel away some of Lula's first-round supporters. Mr Alckmin is counting on regional allies who outperformed him in the election. That goes for Mr Serra, who won easily in São Paulo, and still more for Aécio Neves, who was re-elected as governor of Minas Gerais with 77% of the vote. Lula plans a similar strategy. And at the next debate, Mr Alckmin will not face an empty chair.

Published in The Economist.
Thursday, october 05, 2006

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