ATLANTA -- Louisiana's incumbent Gov. Buddy Roemer has been eliminated unexpectedly from the state's 1991 gubernatorial race as former Gov. Edwin Edwards and former Klansman David Duke bested him in the state's open primary election held Saturday.

Mr. Edwards, a Democrat who received 34% of the vote, and Mr. Duke, a Republican who pulled in 32%, will now face each other in a runoff election set for Nov. 16. In Louisiana, all contenders for the governorship vie in an open primary, but if no one candidate receives an outright majority, the top two finishers then square off in a follow-up contest.

Municipal market analysts, who have linked the state's rebound from its fiscal abyss in the late 1980s, said they were caught off guard by the election results, which left the incumbent in a distant third place with less than 27% of the total votes. However, traders said investor reaction to Gov. Roemer's defeat was muted, as holders of Louisiana debt await details of the remaining candidates' approach to the state finances.

"Everyone was surprised it will be Duke and Edwards in the runoff, but there was also a sense that whoever is elected will have to work within constitutional protections that have been recently enacted to improve the budgetary and revenue-estimating processes," Jim Tucker, manager of municipal research at New Orleans-based Howard, Weill, Labouisse, Friedrichs Inc., said yesterday. Mr. Tucker said that trading in the state general obligation debt was light and not affected by the primary results.

Officials from Standard & Poor's Corp. and Moody's Investors Service yesterday avoided linking the state's fiscal prospects to the gubernatorial campaign, but urged state officials to continue the trend toward fiscal reform.

Both agencies have applauded last October's passage of constitutional amendments that gave constitutional status to the state's revenue estimating conference, established a rainy day fund from oil and gas revenues, and tied the expansion of the state's budget to growth in Louisiana's personal income.

Last December, citing these reforms and the state's improved economic prospects, Standard & Poor's upgraded Louisiana's $2 billion of outstanding debt to A from BBB-plus. Moody's has noted improvements in the state's fiscal prospects in the past year but has maintained its rating of Baal.

"We rate the state and not the governor," said Jay Abrams, a vice president at Standard & Poor's. "But we would hope that the institutional reforms that have been carried out will be maintained. Also, we to encourage the state to move forward in establishing a broader revenue stream."

Mr. Abrams also noted that the state faces yet another year of projected budgetary imbalance because of rising costs and expiring sales taxes. According to some estimates the anticipated budget deficit could be as high as $1 billion for fiscal 1992, which begins July 1.

"What we would like to see -- whoever becomes the next governor of Louisianna -- is continued progress on fiscal reform," said George Leung, managing director of state ratings at Moody's.

Analysts may get more details about the fiscal position of Mr. Edwards and Mr. Duke as each candidate scrambles to garner the votes cast for Gov. Roemer in the primary.

Mr. Edwards has said he favors a permanent elimination of the exemption on sales taxes imposed on groceries and utilities. In addition, he favors statewide casino gambling and has said he favors a constitutional convention to consider tax reform.

Mr. Duke has offered practically no details on his fiscal plan, besides his vow to cut welfare payments. Such payments, however, account for only 2% of the state's budget and are mostly mandated by federal government.

According to a story yesterday in New Orlean's Times Picayune, Mr. Edwards said he will gain the backing of Gov. Roemer's supporters because "most of them are business people, and I stand the best chance of attracting business to the state."

The Times Picayune quoted Mr. Duke as countering, "sixty-seven percent of the vote went to three Republican candidates. They are not going to back a liberal Democrat."

Both Mr. Edwards and Mr. Duke carry serious political liabilities into the a general election less than three weeks away.

Mr. Duke, a one-term state representative, must overcome his past as a grand wizard of the Ku Klux Kla with ties to neo-Nazi parties and his lack of experience in government.

Mr. Edwards, for his part, must work to counter his image among many voters as a free-spending governor who led the state to the brink of fiscal collapse in late 1987. At that time, the state faced a cashflow shoftfall of $940 million and a projected yearend accumulated deficit of $730 million. The former governor must also undo the stain of federal corruption indictments in the 1980s. He has never been convicted.

For Gov. Roemer, Saturday's results bring to a close four years as an outsider that stunned the political establishment by beating Mr. Edwards in the Oct. 1987 primary election. Although elected as a Democrat, earlier this year Gov. Roemer switched party affiliations at the urging of the Bush administration.

Political analysts attribute Gov. Roemer's loss to a weak support in urban areas of the state and to voters' dissatisfaction with the state's continuing economic struggles and their perception that Gov. Roemer had trouble working with the Legislature.

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