[Marxism] In Brazil, da Silva Forced Into Runoff (WSJ)

[Walter Lippmann]

(Perhaps as their way of expressing appreciation to Helena Heloisa for
her role in the campaign to deny Lula a first-round electoral victory,
neither the Wall Street Journal nor the NY Times mention her at all.)
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After casting their ballots Sunday afternoon, Etevaldo Mello and his
wife, Fernanda Bandeira, found themselves in opposing camps.

“I voted for Lula in 2002, but I won’t ever make that mistake again,”
said Mr. Mello, a 40-year-old systems analyst. “He hasn’t done what
he promised, and all we’ve had is corruption. I’ve lost hope and my
faith in him.”

But Ms. Bandeira, a 39-year-old social worker, said she was sticking
with Mr. da Silva. “There’s always been corruption, but at least Lula
has brought it out into the light of day and is trying to fight it,”
she said. “And he’s done more for the poor than all of those before him.”

<http://www.nytimes.com/2006/10/02/world/americas/02brazil.html?pagewanted=p
rint>
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October 2, 2006
	
In Brazil, da Silva Forced Into Runoff
Economy, Scandal Weaken
Leftist in Presidential Vote
As Centrist Makes Inroads
By MATT MOFFETT and GERALDO SAMOR
October 2, 2006; Page A3
THE WALL STREET JOURNAL

RIO DE JANEIRO -- Turned off by government corruption, Brazilian
voters denied President Luiz Inacio Lula da Silva the majority of the
vote he needed to win re-election in yesterday's first round of
balloting, setting the stage for a fierce runoff with centrist
Geraldo Alckmin.

With 97.8% of the vote counted, Mr. da Silva had 48.8% of the vote
compared with 41.4% for his chief rival, Mr. Alckmin. With Mr. da
Silva falling short of the required 50% threshold, the president's
aides were acknowledging late last night that there would be a second
round of voting on Oct. 29.

Mr. da Silva has witnessed an erosion in his once formidable lead in
the past couple of weeks following revelations that officials of his
Workers Party tried to buy a dossier linking candidates in Mr.
Alckmin's Social Democratic Party to an ambulance-procurement scam.
Mr. da Silva's failure to convincingly address the scandal -- he
skipped a debate with other candidates Thursday -- clearly upset
voters, who had seen a host of previous corruption cases in his
government.

A runoff would present a win-win situation for investors. Though a
leftist, Mr. da Silva has proved in his first term that he is a
responsible steward of fiscal policy, and financial markets have
enjoyed an extended rally since he took office in 2003. But most
investors think Mr. Alckmin, a former governor of the wealthy São
Paulo state, has a clearer notion of the overhauls to the pension
system and labor law Brazil needs to rev up its slow-growing economy.

Heading into the second round, Mr. da Silva would have the advantages
of incumbency. But Mr. Alckmin would have momentum. In pre-election
polls tracking a matchup between Mr. da Silva and Mr. Alckmin, Mr.
Alckmin had reduced the deficit to just five points from 17 points
since Sept. 19, according to the Datafolha agency.

Mr. da Silva would be expected to hammer on the benefits he has
brought to poor Brazilians, who are enjoying low food prices and
government welfare stipends that go to 11 million families. Mr.
Alckmin would continue to challenge Mr. da Silva on corruption.

"Brazilians historically have been indifferent about (corruption), "
says political consultant Andre Torretta. "You cannot come to a guy
who's making less than the minimum wage and preach to him about
ethics."

But the scandals during Mr. da Silva's presidency have been so
devastating that Brazilians, especially those in the middle class,
seem to be drawing a line. On Saturday, newspapers published
photographs of the stacks of cash that police seized from Workers
Party operatives alleged to have been involved in the smear campaign
against the opposition. That follows a massive scandal last year in
which some of Mr. da Silva's closest Workers Party allies are facing
indictment for running a slush fund to buy votes in Congress. In a
separate incident last year, a Workers Party official was arrested
trying to go through airport security with $100,000 stashed in his
underwear.

The rhetoric of the runoff is sure to be nasty. To make the point
that he was blameless of the scandals involving his party, Mr. da
Silva recently compared himself to Jesus Christ betrayed by Judas. In
a response, Former President Fernando Henrique Cardoso, a top Social
Democratic leader, said that Mr. da Silva "is not Christ, he is the
devil, and we have to kick him out."

The campaign styles are also a contrast. The rough-hewn but
charismatic Mr. da Silva is viewed with reverence by poor Brazilians;
one mayor in the Amazon approached the president on his knees
recently.

Mr. Alckmin, a doctor by training, is a much more subdued figure on
the stump. Claudio Lembo, the current São Paulo governor, recently
likened Mr. Alckmin to "the son-in-law every mother-in-law wanted to
have."

Some key trends will work in Brazil's favor when the presidential
term starts Jan. 1. Brazil's interest rates, which have been among
the highest in the world, are falling and recently hit a 20-year-low.
Policy makers hope that prompts consumers to open their wallets. The
benchmark interest rate, which has fallen to 14.25% from 19.75% over
the past year, is expected to slip further in coming months now that
Brazil has succeeded in bringing inflation down to around 4%
annually. The government also hopes investors will give the go-ahead
to stalled bricks-and-mortar projects once uncertainty over the
election ends.

Brazil's leaders also will cross their fingers for continued strength
in the global economy. Brazil has been blessed in recent years with
low global interest rates and high international prices for the
country's agrarian and mining commodities, due largely to demand from
China.

But Brazil's economy is beset by structural problems. The country's
sprawling public sector is sustained by a highly taxed citizenry, and
government bureaucracy stifles entrepreneurial energy. Also, due to
higher spending in an election year, the government will struggle to
meet its year-end goal of a primary budget surplus of 4.25% of gross
domestic product.

In June, Fitch Ratings upgraded Brazil's sovereign debt rating by a
single notch to Double B, which is two steps below investment grade.
"We think the new government will stick to the macroeconomic policy,
but there will be very little action on reform," says Roger Scher, a
Fitch managing director. "It's going to be hard for whoever wins to
put together a coalition and hold it together."

A Congress that has been historically fragmented would be harder for
Mr. da Silva to handle in a second term due to scandals that have
weakened his Workers Party and angered the opposition. "At least
initially, the atmosphere will remain charged," says Fernando
Lattman-Weltman, a political scientist with Rio's Getulio Vargas
Foundation. "The opposition will be suffering from a hangover and
there will be a runoff in many states."

Most analysts view Mr. Alckmin as more capable of engineering the
profound economic changes Brazil needs. There is widespread
opposition and sensitivity to changing the public pension system,
which costs 12% of GDP, a higher average than wealthy countries with
much older populations, says a JP Morgan report. Unions are also
protective of Brazil's labor code, which is based on that of
Mussolini's fascist government in Italy and results in millions of
lawsuits against employers and significant severance charges.

But Antonio Delfim Netto, a congressman who was finance minister
during the 1960s and 1970s, has had conversations with Mr. da Silva's
aides and says they know what needs to be done to address Brazil's
slowing growth. "They have no alternative," Mr. Netto says. "They
know Brazilians won't tolerate another tax hike." Brazil's average
tax load has climbed to 38% of GDP, comparable with wealthier
countries', from 26% over the past 12 years.