Brazil Reforms in Doubt Following Collor's Fall

WITH the impeachment of President Fernando Collor de Mello for his role in a giant influence-peddling scandal, Brazilians heaved a sigh of relief.

But while some pundits are declaring a new age of ethics and constitutional democracy, Brazil could be trading one crisis for another.

Vice President Itamar Franco, Mr. Collor's constitutional successor, has an exceptional reputation for probity, but many fear he lacks the political clout to lead Brazil out of a decade of recession and hyperinflation and to stabilize Brazil's institutions after the fall of the first democratically elected president in a generation. Others fear that Mr. Franco will retreat from Collor's free-market reforms.

In any case, building a legislative consensus in the country's fractured 18-party Congress will not be easy.

"The risk now is that under Franco, Brazil will return to the confusion and uncertainty of the presidency of Jose Sarney," says Carlos Langoni, a Rio de Janeiro econ-omist. "Because Franco needs to integrate a large number of political parties to rule, there is the danger that he might not have a clear line of action at the end of the day."

Mr. Sarney's 1985-1990 presidency was marked by political infighting, a suspension of payments on Brazil's estimated $110-billion foreign debt, and a series of failed economic stabilization plans.

After losing Tuesday's impeachment vote in the Chamber of Deputies, Collor now faces trial in the Senate, which could last up to six months. Collor will formally relinquish his powers on Monday, making Franco the acting president.

Early indications suggest Franco's Cabinet will include a wide and possibly unwieldy range of political views. Some worry his government will be tainted with corruption; the agriculture minister-designate, Congressman Delfim Netto, was allegedly involved in corruption scandals during the 1964-1985 military regime. During his time as Brazil's envoy in Paris, Mr. Netto was known as "Ambassador 10 Percent."

"Our differences with some of the Collor government's programs do not represent a criticism of his government's program," said Sen. Fernando Henrique Cardoso, a center-left politician tapped for the Foreign Ministry spot. "It will be a reaccomm odation.... These changes are needed to help the Brazilian people."

In particular, Mr. Cardoso and leading political and economic analysts say Franco will continue to push for privatization of 200-odd state-owned industries, a reduction of high tariffs, and implementation of international agreements to renegotiate the country's foreign debt.

However, Franco and Cardoso both say they want to give Congress more control over what firms are sold. They also want to reduce tariffs more slowly and expect the current political crisis to slow implementation of the debt agreements.

Finance Minister Marcilio Marques Moreira, the architect of most of Collor's programs, will not be invited to join a Franco Cabinet, Cardoso says. Tuesday, in his letter of resignation, Mr. Moreira warned against tampering with his hard-line economic approach and declared that "the days of magic solutions are over."

Robson Pacheco de Souza, former president of the Brazilian Investment Analysts Association, says Franco's planned retreats are likely to push the economy into deeper trouble. Slower tariff reductions, he says, will block competition necessary for increased efficiency and job creation and attempts to kick-start the economy will worsen Brazil's 22 percent a month inflation.

Congress, Mr. De Souza says, is too dominated by local interests to decide what to privatize, and Franco's ideas on financing purchases will limit "badly needed" foreign investment. Franco opposed the first state-asset sale last fall, of a steel firm based in his home state of Minas Gerais.

"Franco does not have the political power or courage to break with Brazil's entrenched, nationalist interests and follow through with Collor's reforms," De Souza says.

And Franco may have little time to get results. Luis Ignacio da Silva, leader of the left-wing Workers' Party, the most disciplined block in Congress, has said his party will push for the impeachment of Franco if changes are not made.

Still, Cardoso and other congressional leaders say there is now a political consensus to move ahead with a sweeping reform of the tax structure, a measure needed to meet the agreements with the IMF and commercial banks.

Cardoso also says Congress will move quickly to consolidate Collor's attempts to fix the chaotic state of the public service and reinforce the federal government's success in deficit reduction by working to limit spiraling state and local debt.

For now, the direction of Franco's government is uncertain. The key Finance Ministry post is still up for grabs, and Franco has a reputation for quixotic and often contradictory stands.

"Right now it's up in the blue yonder," says Sao Paulo commodities broker and business leader Steven Popovics. "Franco is an unknown, unstable quantity."