Skip to main content

Supporters of Brazilian President Dilma Rousseff, who’s running for re-election, attend a campaign rally in Sao Paulo on Friday.MIGUEL SCHINCARIOL/AFP / Getty Images

As Brazilian President Dilma Rousseff began to show a steady lead in polls ahead of Sunday's election, the country's currency sank to its lowest level in six years, and its stock market extended its recent plunge to more than 12 per cent over the past month. The mood is grim in a country that was until recently one of the world's most dynamic emerging markets.

It has been a startling election season, with a key candidate killed in a plane crash, his unlikely replacement surging into the lead in the race and Ms. Rousseff in an unexpected battle to win her Workers' Party a fourth term in power. Ms. Rousseff has clawed her way back to the top of the polls, and the business realm has responded with a fervent anxiety, since she is blamed for the dramatic slowdown in the Brazilian economy. And if she is re-elected, "we're going to see blood in the markets on Monday," said Ricardo Ribeiro, a financial analyst in Sao Paulo.

By Friday, Ms. Rousseff was posting a 15-point lead, substantial but not enough for the 50-per-cent-plus-one she needs to win the presidency in the first round.

Her nearest challenger is Marina Silva, who became the candidate of the Brazilian Socialist Party after a plane crash killed a popular governor in August. Ms. Silva is a populist politician who grew up illiterate in the Amazon, fought for the rain forest alongside Chico Mendes, and was elected the country's youngest senator at 36. She has assembled a team of conservative economic advisers and pledged reform.

In third is the favoured candidate of the business world, Aecio Neves, of the Brazilian Social Democratic Party. After trailing badly through the campaign, his support has crept up close to Ms. Silva's in the past few days. With the hours running down before the vote, it is too close to call, but it seems likely there will be a second-round vote, in three weeks' time, with Ms. Rousseff on the ballot.

"This election has the most contrast between the economic policy models of the candidates – between Dilma and the opposition – than any since 1998, which is why the economy has been so sensitive to the polls," said Armando Castelar, a former head of the economics department with the Brazilian Development Bank .

(All three of the candidates are universally referred to in Brazil by their first names.)

Brazil's growth for 2014 is expected to come in at 1.7 per cent, according to the central bank, a stark drop from rates above 4 per cent in the past decade. Both Ms. Silva and Mr. Neves have pledged to try to reverse the slump with considerable changes to macroeconomic policy: to keep inflation at or below the target of 4.5 per cent, and perhaps lower that target (under Ms. Rousseff inflation has climbed past 6 per cent); to create an independent central bank; and to end the current deficit, which is at nearly 4 per cent, an unusually high figure for Brazil. They say they will open the economy up for more competition, and, critically, make a number of supply-side reforms, including lowering subsidies on fuel prices that are hobbling the state petroleum company Petrobras.

"They want to get private investment believing in a recovery, and a recovery led by private investment," said Mr. Castelar, who now researches macroeconomics at a think tank called the Getulio Vargas Foundation in Rio.

Ms. Silva is fronting a small party, in which she is a newcomer, and she lacks the natural alliances to build the coalition required to govern in Brazil's fractured, many-party system. It's not clear how well she would be able to get legislation through Congress. Juan Jensen, who heads a Sao Paulo economic consulting firm called Tendencias, noted that her economic team is made up of veterans admired by the financial world. But there are outstanding questions about what, in fact, she would choose to do, or be able to do, if elected.

Ms. Rousseff's pro-poor social policies have moved an unprecedented 30 million people out of poverty in the past decade, and lessened inequality for the first time since the 1960s. But she has earned the unbridled enmity of the private sector. A popular joke in middle-class Sao Paulo compares voting for Ms. Silva to playing Russian roulette, but voting for Ms. Rousseff to playing with all six bullets in the chamber. Economists acknowledge that international factors have played a role in slowing growth – they account for about a third of the problem, by Mr. Castelar's estimate – especially, the slowing of demand from China for food and commodities. "But the other two-thirds, that's her policy," he said.

There is some speculation that Ms. Rousseff, if re-elected, will make some reforms, starting with appointing a finance minister with credibility in the business world, Mr. Ribeiro noted.

But Mr. Castelar says it won't happen: "Dilma is her own finance minister and she has strong views on how the economy should be managed, and if she wins the election she will see it as a fair victory, that she has been re-elected for the policies she pursued." And, critically, adjustment to fuel and electricity price hikes will be felt hardest in her key constituency of the poor and lower-middle class.

Analysts say a budget surplus of above 2 per cent of GDP would be needed in each of the next two years to restore credibility, and it won't happen; most anticipate a cut in Brazil's investment rating next year, regardless of who is president.

"With Dilma, the problem is economic governability, with Marina it's political governabilty," Mr. Castelar said. "It's worrying, either way."