RIO DE JANEIRO, Oct. 7 (UPI) -- Three more painful weeks on the rack are in store for this nation's tortured economy, as a leftist and a more "market-friendly" presidential candidate battle in an election runoff.
For months, the continued dominance of the socialist Luiz Inacio Lula da Silva -- known as Lula -- has sunk markets and raised fears that Brazil, South America's largest economy, will default on its $260 billion debt.
While Jose Serra, the candidate of the incumbent government, had a surprisingly good second-place showing in Sunday's presidential elections, analysts say any confidence that markets take from it will be short-lived.
Serra's chances of winning the presidency, local watchers say, are akin to the proverbial snowball's chance on Copacabana beach under a mid-summer sun.
"We are not optimistic about Serra's chances," said Gustavo Reis, an analyst with the Rio-based Pactual investment bank. "Lula is just four percentage points away from the presidency. How does one keep him from earning those votes after such a successful campaign with the centrist electorate?"
The answer is that one probably does not.
In Sunday's election, Lula took 46.4 percent of the vote vs. Serra's 23.2 percent. That left him short of the 50 percent needed to avoid a run-off. But he is likely to gain the support of the third- and fourth-place finishers in the vote.
Anthony Garotinho -- who finished behind Serra with 17.9 percent -- was free to toss support to Lula because of the result for the governor's race in Rio de Janeiro state. Garotinho's wife Roshina won that election in the first round, ousting the incumbent -- a member of Lula's Worker's Party. A run-off there would have kept Garotinho from voicing support for Lula.
By Monday morning, there were already reports in the local press that Garotinho was leaning toward supporting Lula but would abide by what his Brazilian Socialist Party collectively decides.
Which, somewhat, leaves the door open for Serra and the governing coalition's political machine. The history of Lula in Brazil's elections isn't stellar -- he has lost three previous attempts at the presidency. He is holding together a more far-flung collection of parties than Serra, a coalition that could be strained a bit if really tested in the second round.
Serra, on the other hand, must hurriedly rekindle the fire under his centrist coalition that has ruled Brazil for eight years. On Monday, Serra replaced his campaign chief. Two men will lead his strategy in the final three weeks -- the presidents of Serra's Brazilian Social Democracy Party and its coalition partner the Brazilian Democratic Movement Party.
"The second round is too close to call," said Jaime Valdivia, the New York-based Brazil debt strategist for Morgan Stanley. "It is difficult to see how investor confidence can return in the near term with such a close election outlook."
Valdivia said investors will begin taking cues from the first opinion polls in regard to the second-round vote, which should come out this weekend.
"The biggest positive of a runoff is that it forces the debate on key issues," Valdivia said. "Serra will likely attempt to focus on financial and economic security and job creation. For Serra it will be key to demonstrate to voters that voting for Lula is a vote for 'uncertainty.'"
Brazil's markets on Monday were doing their best to aid Serra's potential strategy that Lula equals economic chaos.
At mid-day, Brazil's benchmark 8 percent bond due in 2014 lost 0.73 cent on the dollar to 53.5, with its yield rising to 23.4 percent. The local currency, the real, fell 2.78 percent to 3.71 per dollar, and the Bovespa stock index fell 3.68 percent to 8,919.
While associating economic pain with Lula is nothing new for Brazil's voters, Serra will find it difficult to convince the electorate that this is reason enough to vote for him.
Roughly 75 percent of Brazil's voters on Sunday rejected the free-market reforms that Serra, the government's hand-picked choice as successor, is thought to represent.
Under the eight years of President Fernando Henrique Cardoso, Brazil undertook reforms as never before, yet unemployment remains high, the economy is stalled and the gap between rich and poor is growing.
The rejection of the neo-liberal economic model coming from the United States has never been higher, and it is spreading across Latin America in countries like Argentina, Uruguay and Venezuela.
For Reis, it seems there's just not enough time, and not enough tricks left in Serra's bag, to keep Lula from the presidency.
"Serra's chances of success ultimately depend on his ability to damage Lula, something he has already tried over the past weeks with inefficient results," Reis said.
"The Worker's Party is very much aware of this and will limit Lula's participation in TV debates. Serra's margin to maneuver looks thin as we are less than three weeks away from the runoff."
