Today Is Dawn of Democracy for Brazil : South America: Collor’s inauguration draws foreign dignitaries. But any celebration will be clouded by the national economic crisis.

The largest country in Latin America completes a long transition to democracy today with the inauguration of Fernando Collor de Mello, 40, as the first popularly elected Brazilian president since a 1964 military coup.

The event has drawn a host of foreign dignitaries to this 30-year-old inland capital, including President Fidel Castro of Cuba and Vice President Dan Quayle. The atmosphere of celebration, however, contrasts sharply with the reality of a national economic crisis that includes hyper-inflation of more than 70% a month.

The runaway inflation will present Collor, an advocate of free-market policies, with his most urgent challenge as president. At his request Tuesday, outgoing President Jose Sarney decreed a bank holiday Wednesday through Friday to prevent financial speculation and confusion in anticipation of anti-inflation measures.

As the foreign guests arrived Wednesday, security measures and inaugural preparations raised tension in this normally relaxed city.

Over the weekend, an advance plane for Castro’s entourage caused a minor flap when Brazilian authorities found it loaded with tons of weapons, which the Cubans said were needed for security. The Brazilians sent most of the weapons back to Cuba, including automatic assault rifles and grenade launchers.

Quayle was asked on arrival whether he would talk with the Cuban leader, as he had talked with another foe of recent U.S. administrations, Nicaragua’s President Daniel Ortega, in Chile. “We have no desire to meet with Castro,” he replied.

Brazilian newspapers said Wednesday that Collor’s first economic measures, to be announced Friday, will include a major devaluation of the national currency, suspension of government incentives and subsidies, a 4% tax on the liquid assets of corporations and the replacement of an overnight money market with one that will require deposits to be held at least a week.

Although Collor has said he does not want to freeze prices and wages, some newspapers say a temporary freeze is being planned. In anticipation of a freeze, some stores have marked up prices by more than 100% in recent days.

Collor has promised to lower Brazil’s inflation rate to 10% a month within 100 days. He also has said he will sell or shut down many government-owned corporations, eliminate the government’s inflationary deficit, crack down on tax evaders and open the country’s economy to foreign competition and capital.

Last weekend, he said the cost of the economic reform will be paid by Brazilian “elites” and not the country’s poor majority.

“At no moment will the price of our difficulties be paid by the workers,” he pledged. “The problem is caused in large part by that corrupt elite that lives on government favors.”

To help enforce his economic policies, Collor has given federal Police Chief Romeu Tuma the added duties of overseeing tax collections and pricing regulations.

In naming his Cabinet, Collor gave Brazilians a series of surprises. One of the most unexpected appointments came this week, when he designated Supreme Court Justice Francisco Rezek as his foreign minister.

Rezek, a career jurist, was president of the Supreme Electoral Council, which conducted presidential elections in November and December, finally certifying Collor’s victory in the runoff. One of the losing candidates, Leonel Brizola, hinted that Rezek’s appointment compromised the integrity of the electoral process.

Collor named Zelia Cardoso de Melo, a young economist with experience only at lower and middle levels of government, as his powerful economy minister.

Collor rose to national prominence as governor of Alagoas, a small state in Brazil’s impoverished northeast. He captured media attention by waging a tough campaign against the “maharajas”--overpaid public servants.

The newspaper Folha de Sao Paulo noted Wednesday that Margarida Procopio, Collor’s minister-designate of social action, was on a list of 273 Alagoas “maharajas” published by Collor in 1987.

Backed only by a tiny and recently formed party, Collor came from behind as a presidential candidate last year by campaigning against corruption and inefficiency in the Sarney administration. Sarney, a former senator who took office as provisional president when the armed forces left power in March, 1985, was an unpopular and largely ineffective leader.

His main claim to a place in history may be for ushering this nation of 150 million people to full democracy after 29 years without popular presidential elections.