In a stunning development in Brazilian politics, incumbent president Luiz Inacio Lula da Silva did not win a clear majority in Sunday’s election. With only 48.6 percent of the vote, da Silva will have to face his strongest challenger in a runoff.

Da Silva is a popular figure in Brazil, responsible for instituting a sweeping series of socialist policies that have brought millions out of poverty, stabilized the economy and stopped rampant inflation — all without raising taxes.

But scandal has plagued the administration, costing da Silva his chief of staff, his finance minister and other aides. Scandal struck again in the days leading up to the election when allegations arose that leaders of da Silva’s Workers Party tried to buy political dirt on the opposition — $770,000 worth of dirt! As voters tried to decide how to cast their votes, newspapers ran photos of piles of money seized in the Worker Party sting and the names of six party members that face arrest warrants.

Da Silva’s main opponent, former Sao Paulo Gov. Geraldo Alckmin, is known for speeches that are so boring they would put a cheerleader with a meth addiction into a coma. While da Silva is affectionately known as “Lula” to his supporters, Alckmin has earned the nickname “chuchu” after a flavorless green vegetable.

Yet Alckmin beat predictions by inspiring 41.6 percent of the voters to side with him and now the over-confident da Silva is facing a fight for the 29 October runoff.

Markets rose on the election news, as investors believe that da Silva and Alckmin will have similar economic policies, even though Alckmin has attacked the sky-high interest rates that have kept inflation under control because they have kept Brazil’s economy from growing as strongly as their Latin American neighbors. Further, da Silva’s support in the legislative body has been so severely eroded by scandal that he has trouble gaining support for his initiatives.

In fact, Goldman Sachs circulated a letter to its clients stating, “We believe an Alckmin administration could have better political conditions than President Lula to push for ambitious structural reforms.” And reform is necessary for this county in which companies often keep incompetent or lazy employees on the payroll because of the high costs associated with firing them.

And in the words of another disgraced president, “It’s the economy, Stupid!” This is particularly true of this election.

Da Silva won his first election in 2002 with over 50 percent of the middle-class vote and only a minority of the poor’s. This year da Silva has only 35 percent of the middle class.

Working class people are worried about the effect that long-term double-digit inflation has on the economy. Says one worker, “Interest rates are so high that people are starting to lose jobs — there’s no investment because of that.” Others are worried that the lack of employment, banking and social security reform will lead to a collapse of the ambitious social programs that will wreck the economy.

But da Silva’s support by those who earn less than $340 per month has skyrocketed to almost 60 percent. When it became apparent that this latest scandal was eroding his base, da Silva cranked up the rhetoric, returning to the firebrand working class socialist character designed to appeal to the poor. And there are a lot of poor people in Brazil.

Da Silva’s programs, like giving $30 per month to needy families who agree to vaccinate their children and keep them in school, have raised over ten million people out of poverty, yet 18.5 percent (over 35 million) remain. 70 percent of the population has less than eight years of schooling.

Just how many of Brazil’s poor will trouble themselves to get to the polls? Voting is mandatory in Brazil.

Links:

• Runoff may be needed in Brazil election
• Alckmin Forces Runoff in Brazil Election
• Lula shy of 50 percent in Brazil election, faces run-off, senior
• Brazil First-Round Poll Boosts Investors
• Support From Brazil’s Poor Gives Lula Edge in Election
• Brazil’s leader forced into runoff election
• Graphic from AFP via Yahoo! News