Brazil's Political Crisis Intensifies

President Collor is increasingly isolated in wake of report linking him to corruption

BRAZILIAN President Fernando Collor de Mello moved one giant step closer to impeachment yesterday with a congressional committee's vote to approve a report linking him to a huge influence-peddling ring.

Whether or not the attempt to remove Brazil's first democratically elected president in 30 years succeeds, the country's fractious party system will almost certainly lead to an extended period of political and economic uncertainty.

Brazil is no stranger to crisis, but this time it threatens a the sweeping economic and social reforms many hoped would lead Brazil out of a generation of corrupt military rule and a decade of recession, hyperinflation, and runaway foreign debt.

"In the near-term, there is little good that can come out of this crisis," says Jose Goldemberg, Mr. Collor's widely respected former education minister, who resigned in protest earlier this month. "In the long run, if this helps us clean up our political system, it will be good."

The scandal began in May when Collor's brother Pedro denounced the activities of Paulo Cesar Farias, the president's 1989 campaign treasurer. An 84-day congressional probe found that Mr. Farias and several close Collor associates used their proximity to the president to win contracts, favors, bribes, and influence. The committee tracked $330 million in illicit earnings and concluded that Collor knew of the scheme, but did nothing to stop it.

Most damaging for Collor, the committee turned up thousands of checks drawn on illegal accounts set up in the names of fictitious people. Controlled by Farias, these "ghost" accounts were used in part to funnel $9 million to Collor's family.

"Collor's involvement was total and direct," says Sen. Fernando Henrique Cardoso. "He has been involved in common, uncommon, and all types of crimes. It has been a festival of crime."

After the report was made public Monday, Marcello LaVenere Machado, president of the Brazilian Bar Association, and Barbosa Lima Sobrinho, president of the Brazilian Press Association, said they would file for impeachment proceedings as early as next week.

[In an interview on Argentine television Tuesday night, Collor gave his first public statement since the committee's report was released, Reuters reported. Collor accused the press of exaggeration, and he welcomed a court investigation into the report's allegations. "As Brazilian president and the guardian of the Constitution, I am awaiting the verdict of the judicial system," Collor said. Asked whether he or democracy were in danger, Collor said: "Neither of the two. I am quite calm. Life in Brazil goes

on."]

But the scandal has created a wave of public indignation. Before the committee finished its 5 1/2 hour formal report, 200,000 people had gathered in Rio de Janeiro to call for impeachment. On Tuesday, 300,000 demonstrated in Sao Paulo. Smaller rallies have been held or are scheduled in most major Brazilian cities.

THOSE banking on Collor to restructure Brazil's state-dominated economy and dizzyingly bureaucratic government also received a shock. The report says Farias and his "gang" conspired to use a series of widely unpopular anti-inflation and administrative reforms for personal gain.

In addition, Collor's commitment to tough economic reform has weakened in recent months. Trying to shore up political support, he eased on spending restraints. As a result, commitments to the International Monetary Fund and the Paris Club of commercial banks, now restructuring the country's crippling debt, could be derailed. That in turn could stop the trickle of foreign financing that the government is counting on to kick-start the economy.

While Collor has managed to cut inflation - which was more than 70 percent a month when he took office - it is now stuck at 22 percent a month. Unemployment approaches 20 percent.

"Brazil has already suffered overseas as a result of this crisis," says Richard Foster, editor of the Brasilia-based newsletter Brazil Watch. "Brazil is pushing the outer edge of the world's patience. For years they've said a turnaround is just around the corner. Now the earliest we can think of is 1994. By then, everyone may just give up."

With Collor refusing to resign, political deadlock also looms. He now depends on the right-wing Liberal Front Party (PFL) to block the two-thirds Chamber of Deputies vote needed to send him to trial in the Senate. The second largest block in Congress, the PFL has, in theory, enough votes to block impeachment. It does not, however, have enough votes to launch a legislative program. Congressional power is diffused in an alphabet soup of 19 parties.

The earliest Collor could be forced from office is April 1993. Legal and procedural fights could drag out the process for as much as a year.

For the moment, stability depends on Economy Minister Marcilio Marques Moreira. The guardian of Collor's economic plan, he has become a virtual prime minister. He has distanced himself from Collor, but his tough fiscal policies are highly unpopular with many in the PFL.

Industrial leaders and Collor opponents afraid of economic collapse have begged Mr. Moreira to stay. The possibility of his departure now worries foreign investors and local business people more than the loss of Collor.

Steven Popovics, owner of a major Sao Paulo commodities brokerage, believes that if the president stays, he will be a virtually powerless figurehead. "The business community is counting on Moreira to keep things stable."

The PFL, awarded with ministerial posts and money for major constituencies, is now mounting a spirited but risky counterattack against the commission's report.

"This is just an attempt by the left and radicals to subvert the government," says PFL Sen. Ney Maranhao. "Their conclusions are illegal and unconstitutional. Collor is our George Washington.... If he leaves, the country will collapse."

Even with a growing PFL split that makes an impeachment trial likely, there is widespread feeling that little will change as a result of the scandal.

"Farias has said that this whole process is hypocritical." says Mr. Foster. "This is not a defense, but it is largely true. Most of the politicians in the country are corrupt in some way or another.... Even if impeachment is successful, there are many people who will be content to leave the matter there, but it's only the tip of the iceberg."