(Bloomberg) -- Luiz Inacio Lula da Silva won Brazil’s presidential election in a dramatic comeback for the left-wing politician who was languishing in a jail cell for corruption just three years ago.
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He defeated the incumbent Jair Bolsonaro with 50.9% to 49.1% of the votes in Sunday’s runoff, according to the official tally. The outcome signals a change in direction for Latin America’s largest economy after a heated campaign that showed extreme polarization among the electorate, and marks the first time a sitting president in Brazil has lost a re-election bid.
“I consider myself as someone who’s been resurrected,” Lula, 77, said in his first speech as president-elect in Sao Paulo. “They tried to bury me alive.”
Bolsonaro, 67, has yet to concede or comment on the results. Lula told supporters he hasn’t received a phone call from Bolsonaro and O Globo newspaper said he’s been unavailable even for his closest allies. The president’s reaction will be closely watched by investors since he repeatedly questioned the electoral authorities during the campaign, suggesting he might not recognize the result.
Still, Brazil’s lower house Speaker Arthur Lira, a Bolsonaro ally, wrote on social media that the “will of the majority must not be challenged,” while Senate chief Rodrigo Pacheco praised the country’s electronic voting system.
US President Joe Biden quickly congratulated Lula, saying the elections were “free, fair, and credible.” China, Brazil’s largest trading partner, also complimented the president-elect in a Twitter post by its local embassy.
The Brazilian real underperformed most emerging market currencies on Monday, weakening 0.8% at 9:45 a.m. in Sao Paulo after dropping about 2% earlier. Futures on the local stock market also declined, as investors awaited for picks to lead key cabinets including the finance ministry.
In his victory speech, Lula promised to reunite the country after the divisive race, rebuilding ties with other government institutions. His first goal, he added, is to “end hunger again” while attracting foreign investors to re-industrialize the economy. He also pledged “zero deforestation” of the Amazon.
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In downtown Rio de Janeiro, a crowd that had gathered in front of the city’s municipal chamber to watch the results erupted in jubilation as the final vote tally ticked in. Red-clad supporters for the president-elect shot off bottle rockets and tossed beers in the air. Couples embraced, others cried.
“It’s been four very hard years, I lost my job in the pandemic and see so many others struggle to get by,” said Flavio Nema, 25, an out-of-work history teacher. “It’s not going to be easy for Lula, he’s got a congress against him.”
The election exposed the divide between a sizable minority who support Bolsonaro’s right-wing, populist rhetoric, and predominantly poorer voters with memories of better times under Lula, who oversaw an economic surge amid a boom in commodity exports when he ran the country from 2003 to 2010.
Despite his triumph, the president-elect will face a divided country and a divided congress, with Bolsonaro’s allies having captured a large presence in both chambers on top of controlling the country’s three most populous states, Sao Paulo, Minas Gerais and Rio de Janeiro.
“Lula’s challenge of governing is bigger than that of winning the election. Brazilian society needs to be rebuilt in its institutional and fiscal basis,” said Carolina Botelho, a political scientist with the Institute of Advanced Studies at Sao Paulo University. “Lula will need to recover the internal and external trust of financial agents and civil society.”
He returns to the helm at a moment of acute political and social tensions in Brazil, with concerns about rising levels of poverty in an economy that’s yet to fully recover from the damage wrought by the pandemic. Internationally, Brazil is under pressure to reverse Bolsonaro policies that contributed to deforestation in the Amazon and affirm rights for the LGBTQ community and other minorities that the president frequently ridiculed.
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As much as an endorsement of Lula, the outcome is a repudiation of Bolsonaro’s four years in office, including his erratic handling of the pandemic that left some 700,000 Brazilians dead and his constant clashes with institutions such as the electoral authorities. The president consistently struggled with female voters, who make up almost 53% of the total.
“What defines this election is a rejection of Bolsonarismo,” said Christian Lynch, a political scientist at the State University of Rio de Janeiro.
Lula’s victory continues a trend of wins by left-wing candidates in Latin America over the past 18 months, most prominently in Chile, Colombia and Peru, as voters punished incumbents that were in charge during the Covid-19 outbreak.
But it also showcases Lula’s sharp political skills, particularly his ability to come back from the corruption scandal that marred his legacy. Lula was a wildly popular president before accusations of wrongdoing and fiscal mismanagement resulted in the impeachment of his hand-picked successor, Dilma Rousseff, in 2016. By 2019, Lula was behind bars and facing a long prison sentence amid accusations he steered billions of state contracts to allies. Released on a technicality, it cleared the way for him to run last year after the Supreme Court quashed his convictions.
While today many Brazilians see him as a symbol of corruption, he remains revered by others for launching social programs that lifted millions out of poverty. Confronting Bolsonaro’s authoritarian bent, Lula campaigned as a defender of democracy.
Brazilians voted against the incumbent despite an improving outlook for the $1.8 trillion economy, with unemployment falling for seven consecutive months, easing inflationary pressures and the costs of borrowing steady after an 18-month tightening campaign by the central bank.
That’s an encouraging setup for Lula as he takes over the reins after forming alliances during the campaign, most notably with Senator Simone Tebet following the first round, that should bolster his support in a center-right leaning congress. It sends a positive sign to investors as it means he can move faster on the reform front and addressing economic challenges, according to Adriana Dupita, a Sao Paulo-based economist at Bloomberg Economics.
“Lula’s victory brings the sense of an end of a cycle and the beginning of a new phase,” she said. “His third term comes amid very different circumstances than the first two, politically, globally, economically as well.”
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Investors will be watching closely to see who Lula appoints as his finance chief after refusing to specify a name from the dozens of economists who advised him during the campaign. Former central bank chief Henrique Meirelles and ex-Health Minister Alexandre Padilha have emerged as two strong candidates for the job, three people with knowledge of the matter told Bloomberg News before the vote.
Early in his campaign, Lula reached out to a broad coalition comprising 10 parties and tapped a centrist former rival, Geraldo Alckmin, as his running mate. While the multi party alliance amplifies the reach of the new government, some experts warn that the different priorities within the coalition could be a weakness at the moment of taking decisions.
There are also questions about how an older Lula, who is a cancer survivor and said he will only serve one four-year term, will tackle a more complex country than when he first came to power two decades ago.
“Lula’s main challenge will be to reconcile the divergent interests from the broad group that supports him,” said Paulo Gama, a Sao Paulo-based political analyst with brokerage firm XP Inc.
--With assistance from Julia Leite, Beatriz Reis, Aline Oyamada, Daniel Carvalho and Maria Eloisa Capurro.
(Updates with market reaction in seventh paragraph.)
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