Exclusive: Brazilian leftist meets investors to tame fears of PT return to power

By Lisandra Paraguassu

BRASILIA (Reuters) - Fernando Haddad, the Workers Party vice-presidential candidate who could be catapulted to Brazil's presidency if Luiz Inacio Lula da Silva is barred from running, has quietly met with major investors to tame fears of a leftist return to power.

Haddad, an economist, told Reuters he has met with several investment firms and banks in recent weeks, an echo of Lula's move toward the center in 2002 when he won his first term after pledging to follow orthodox economic policies.

Haddad did not provide details about the meetings.

However, several market sources and PT members who took part said he met with senior executives of JP Morgan, Morgan Stanley, Itau, UBS, BTG Pactual, XP Investimentos and Guide Investimentos in the past few weeks.

He plans to meet with top executives of Credit Suisse and senior officials at Brazil's national banking federation Febraban in the coming days, according to PT members who accompanied him to the meetings.

The press offices of those firms did not immediately reply to requests for comment.

Other candidates on competing presidential tickets have met with financial firms, but Haddad's making the pilgrimage to Sao Paulo's business center recently was unexpected, as Lula insists he is the victim of a right-wing conspiracy of elites to block his returning to power and shifting the country back on a leftward course.

Haddad said he and Lula agree that Brazil faces "serious tax, credit and fiscal problems" but both thought the reforms to labor laws and government spending made under President Michel Temer were "counterproductive" because they had not sparked growth.

A former mayor of Sao Paulo, Haddad said he supports inflation targeting, floating exchange rates and budget surpluses. However, he provided no details on the means or targets the PT would employ if returned to power.

Lula's continued dominance in election polls has rattled markets, with Brazil's currency now trading near record lows.

Since he was found guilty of graft, Lula's rhetoric has skewed far to the left of the pragmatic centrist political image he cultivated while in power. The former union leader held office from 2003-2010.

"Haddad showed that he is far more open to dialogue than we were expecting," said an investment firm economist who met with him recently. "He sold a moderate image that could calm the market, but there remain the same old fears of the PT."

The main worry is that Haddad lacks a strong PT base, despite being chosen by Lula to fill his spot on the ticket if he is barred. The party shifted left after Lula's handpicked successor, Dilma Rousseff, was impeached, raising concerns Haddad cannot tame its militant factions.

HADDAD VS. BOLSONARO

October's election is the most unpredictable since Brazil's return to democracy three decades ago. The country's top electoral court is expected to bar Lula from running within days, as his corruption conviction upheld on appeal disqualifies him under a "clean slate" law.

Lula, 72, says he is innocent and was singled out in corruption investigations so he could not regain the presidency and reverse Temer's reforms, which included loosening labor laws and creating a 20-year government spending cap.

The same polls that show Lula way ahead also indicate that if barred, he could likely transfer enough of his support to Haddad to push him into a second-round runoff.

Haddad, 55, would likely face far-right candidate Jair Bolsonaro, 63, who is ahead in the polls when Lula's name is excluded and who named a well-known investment banker to head his economic team.

Five analysts and economists from different firms who met with Haddad told Reuters they were soothed by his pragmatic talk, but that the market remains divided between Bolsonaro and Haddad when it comes to who can jumpstart the globe's eighth-largest economy.

The Bolsonaro economic team's talk of mass privatizations pleases market players, but the candidate's lengthy statist voting record during nearly three decades in congress and unpredictability are increasingly generating anxiety and doubt.

That benefits Haddad, and market sources who met with him where impressed by his talk of a pragmatic economic approach and willingness to entertain different ideas.

"Our evaluation was that Haddad is much more reasonable than the PT as whole," said one analyst.

Another plus for Haddad, market sources said, was that even amid the political upheaval of recent years, the PT would be more prepared to engage in the political horse trading required to govern, as opposed to Bolsonaro, a member of Social Liberal Party, a fringe party with virtually no coalition.

Samuel Pessoa, an economist and researcher with the Getulio Vargas Foundation in Sao Paulo who is a member of the PT's traditional rival PSDB, has known Haddad since the pair studied economics together. He said Haddad is not an "adventurer" when it comes to policy and that he would not morph into a member of the PT's more militant and leftwing factions.

But Pessoa said he shared the same concerns analysts expressed.

"The PT right now is very bitter, spiteful and authoritarian," Pessoa said. "Haddad is going to have to work with the more reasonable people within the party."

(Reporting by Lisandra Paraguassu; Writing by Brad Brooks; Editing by Daniel Flynn and Phil Berlowitz)