Brazilian Election Damages Currency

Fear of a leftwing victory in the Brazilian presidential election next week has caused the currency to plummet and provoked criticism that Wall Street is exerting undue influence on domestic politics.

Opinion polls in the past few days suggest that Latin America's biggest country will elect its first leftwing president for more than 40 years. Luiz Inacio Lula da Silva of the Workers party currently has 41% support, only a few points short of outright victory in the first round.

He is more than 20 points ahead of his main challenger.

But the former metalworker's lead has sent shivers through the international markets. Since April the real has lost more than a third of its value, reaching a low on Tuesday, equivalent to a devaluation of 41%.

"The market is worried about what will happen under Lula," Antonio Madeira, a political analyst at MCM Consultores in Sao Paulo, said. "The market is not going to give him the benefit of the doubt."

Lula, who was the runner-up in the three previous elections, has made efforts to convince investors that he would be a responsible president. Despite his party's anti-globalisation rhetoric, he has renounced plans to re-nationalise industries and has promised moderate economic policies.

The value of the real has become a crucial election issue, since it threatens to impose an economic straitjacket on the country, increasing its debt servicing problems and pushing inflation.

"The problem with having a floating currency is that it becomes a loudspeaker for any pressure, and it then itself becomes an instrument of pressure," Fernando Cardim of the Federal University of Rio de Janeiro said.

The Workers party has led the polls for most of the year, and has courted support from big business. Last weekend an influential electronics magnate urged voters to back Lula.

Andre Singer, the party's campaign spokesman, said he believed that the exchange rate depended more on the international situation than the election.

But one of his colleagues accused the central bank of "economic terrorism" by allowing the real to lose value to the benefit the market's preferred candidate, Jose Serra.