Brazil's Corruption Scandal Widens, Delaying Fiscal Reforms

BRAZIL has already lost a president to corruption. Now, a year after an influence-peddling scheme deposed Fernando Collor de Mello, some of the men who voted him out of office are also facing the threat of impeachment.

The source of the allegations is Jose Carlos Alves dos Santos, former director of Brazil's Federal Budget Office. He has been charged with drug trafficking, possession of counterfeit dollars, and with murdering his wife so she would not expose a corruption scandal involving him. He was arrested last month after police, looking for evidence in his wife's case, entered his home and found $800,000.

The targets of Mr. Santos's accusations are 29 representatives, senators, former and current ministers, and state governors who he says have been stealing from the federal treasury since 1989, when the National Congress gained the right to alter the budget before voting on it.

Santos claims that the ``Corruption Mafia,'' as some in the Brazilian press have come to call the group, received kickbacks from contractors who were granted public-works projects around the country. According to Santos, members of Congress also pocketed money allocated for nonexistent projects in Brazil's poorest communities.

He claims that Mr. Collor's economy minister, Marcilio Marques Moreira, allowed the inclusion of amendments to the budget that were the result of payoffs. Mr. Moreira has denied this. Federal Police are also investigating the possibility that members of Congress passed budget information to Paulo Cesar Farias, Collor's former campaign treasurer and head of the influence-peddling scheme that deposed Collor.

Santos says that the money found in his house came from Joao Alves, a representative from the state of Bahia and ex-chairman of the federal budget committee. Santos claims Mr. Alves distributed the money from contractors to members of Congress, consulted Santos about the viability of certain projects in order to get government approval, and paid him to keep quiet. Alves denies involvement and says the $5 million he amassed in five years came from winning the lottery 200 times.

Congressman Sergio Guerra, one of the accused, testified to the Parliamentary Inquiry Commission (CPI) last week. He says he has been implicated only because he was in charge of highway projects that involved large sums of money.

``I think that Santos is inventing things,'' Mr. Guerra says.

At his hearing before the CPI on Nov. 19, Rep. Genebaldo Correia, leader of the Democratic Movement Party, Brazil's largest party, failed to explain why $1.6 million had been deposited in his account in the last five years. He said he kept leftover campaign funds (an illegal activity in Brazil) even though the amounts were deposited in nonelection years. Mr. Correia said he was being ``pre-judged'' and would not say if the money that was deposited came from contractors.

JOSE Eduardo Goncalves, spokesman for one of the contracting firms that Santos alleges gave money to members of Congress, says the charges against the company are ``speculation, not concrete.''

In the last month, eight of those involved in the scandal have testified before CPI.

``So far, the testimonies are revealing extremely valuable information ... to see how members of Congress placed their own personal interest ahead of the public's,'' says Eduardo Suplicy, a senator and CPI member.

Members of the CPI worry that those implicated will resign before they are removed from office - like Collor did - to prevent being barred from politics. The final CPI report will recommend the elimination of the political immunity enjoyed by members of Congress, and criminal charges could be brought against those involved.

The scandal has caused the constitutional review scheduled to begin in October to be postponed. Fiscal reform to increase tax revenue and bring down Brazil's 35 percent monthly inflation will also suffer a delay, says Enilson Simoes de Moura, leader of the labor union Forca Sindical.

All of this damages Brazil's pending agreements with private banks and the International Monetary Fund, which are necessary for Brazil to reduce its $115 billion foreign debt.

``No one invests when there's a lot of uncertainty in the country. There's no medium or long-term planning. Who knows what economic situation we'll have next year. What the government really needs to do is fiscal reform, cut spending, and reduce tax evasion,'' Mr. Moura says.

Some business leaders, however, seem to be optimistic about Brazil's economic future.

``I think the visibility of this scandal helps us to have a more ethical business environment in Brazil. It provokes fear and caution to those involved in dirty business,'' says Danilo Talanskas, a manager for General Electric in Sao Paulo.