Brazil Pro-Business Party Surges in Local Polls

10/07/2016 - 15h39

The pro-business Brazilian Social Democracy party or PSDB emerged victorious in the first round of Brazil's local elections on Sunday, leading the country's currency to strengthen against the dollar.

The PSDB's candidate for São Paulo mayor, João Doria, won outright in Brazil's largest city, defeating incumbent Fernando Haddad of the former ruling party, the leftwing Workers' party, or PT, which suffered nationwide humiliation in the elections.

The centrist Brazilian Democratic Movement party, the PMDB, the group led by President Michel Temer, meanwhile, lost control of Brazil's second-largest city, Rio de Janeiro, but still won the most mayoralties in local elections held across the country.

Analysts said the victory of pro- business parties in the election bode well for the 2018 presidential election and for Mr Temer's prospects of passing crucial fiscal reforms in the coming weeks, such as a cap on budget spending.

"After the first round of municipal elections, the focus fully shifts to the path for approval of the spending cap in congress," said Santander Bank analysts Nicholas Kohn and Brendan Hurley in a research note.

The local elections come at the midpoint of the presidential term and this year are regarded as an important indicator of the mood among voters. Nearly half a million candidates for mayor, vice-mayor and city councillor competed for positions in 5,568 municipalities.

The PT is suffering repeated blows with the impeachment of former president Dilma Rousseff in August for alleged budget violations and a probe into a bribes-for-contracts scheme at state-owned oil company Petrobras.

Her party has been badly hit by the scam, which has also implicated Mr Temer and members of his PMDB. Mr Temer has denied any involvement.

The PMDB were long-term allies of Ms Rousseff until the impeachment motion in April, with Mr Temer formerly serving as her vice-president.

Analysis of the election results by website UOL using data from the election authority, the TSE, showed that the PT's number of mayoralties collapsed by more than 50 per cent from 630 in the last elections in 2012 to 256 in the first round this year, with the possibility of gaining only a few more in the second round.

The PSDB, meanwhile, increased its number of mayors to 793 from 686 during the last elections while the PMDB won 1,028 in the first round compared with 1,015 in the last elections. Other smaller parties that form Mr Temer's base in congress also performed well, strengthening his chances of pushing through difficult reforms, analysts said.

"I voted for Doria mainly because he is new to politics," said Orlei Rodrigues, an employee with a construction business. "Who knows, maybe he will be different from most of them, who only want to profit from the municipality."

The spending cap bill will require a constitutional amendment that will need 60 per cent of votes in each house to be passed.

Local media reported it could be voted on in the lower house as early as the second week of this month.

The collapse of the PT, however, also helped to fragment the vote, which will make the next national elections even more unpredictable than usual with 35 parties registered to contest them.

Analysts said the 2018 elections would remain an open contest, as discontent with politicians ran deep among Brazilians. Additional reporting by Carina Rossi in São Paulo

Copyright The Financial Times Limited 2016

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