Bhutto Denies Corruption Charges, Vows to ‘Fight On’ : Pakistan: The ousted prime minister blames the press and the military for her downfall. She fears for her safety but still plans to run for her former office.

Three months ago, Prime Minister Benazir Bhutto finally took action against the corruption and incompetence that threatened her fragile government: She ordered alterations at her family home, Bilawal House.

Workers suddenly surrounded the posh seaside villa with a 30-foot-high reinforced-concrete wall topped with sharp spikes. Gun turrets, with slits for machine guns, were put atop each corner. Barbed wire was laid out front.

Now, a week after Bhutto was abruptly deposed, the transformation of Bilawal explains much of the tragedy of Benazir Bhutto, hailed only 20 months ago as a champion of Pakistan’s poor and a darling of Western democracy.

“She got increasingly arrogant,” a Western diplomat said. “She got out of touch. And she got paranoid.”

In an interview with The Times inside the armed compound, Bhutto, who suffered nearly five grim years in prison under the previous military regime, said she is afraid today--for herself and for Pakistan.

“I go to bed at night waiting for a knock on the door,” she said softly. “Normally, they come in the night to arrest you. Across the country, there’s a great deal of uncertainty. No one knows what’s going to happen.”

Backed by Pakistan’s powerful, politicized army, President Ghulam Ishaq Khan pledged free elections, citing corruption and misuse of power. Bhutto says she will run and win what most predict will be a bitter and bloody campaign.

“The thought is quite traumatic,” Bhutto said. “I think: ‘Oh my God, do we want to go through this again?’ But then I think it’s a matter of honor. The way they dismissed us was so unjustified. So totally wrong. We must fight on.”

But the 37-year-old Radcliffe and Oxford graduate said she will “not recognize” or submit to special courts that the interim government is creating to investigate charges--made by diplomats, businessmen and analysts as well as her opponents--that Bhutto’s government was the most openly corrupt in Pakistan’s 43-year existence.

Indeed, she refused to concede any corruption in her family or Cabinet. She blamed the press instead.

“It’s been trial by newspapers,” she said angrily. “It’s like witch hunts in medieval times. We’ve been hounded by hearsay and rumor.”

Alternately defiant, strident and appealing for sympathy, the first woman to head a modern Islamic state defended her attempt to lead this impoverished country and third-largest recipient of U.S. aid into a working democracy.

“My head is held high,” she said. “I didn’t make any compromises.”

She also didn’t make much progress. Bhutto leaves little but a souring economy, a restive military and a cycle of urban terrorism and ethnic violence that has killed at least 400 people this year here in Sind province, her home region.

Her administration passed two budgets, but nothing else. Businesses and bureaucracies were burdened with 26,000 patronage appointees. Prices shot up for food and fuel. She was headstrong and naive. Her aides were worse.

Bhutto admits her staff was “young and inexperienced,” but she insists that wasn’t the problem.

“We were never given a chance,” she argued. “From day one, our hands and feet were tied. There was a whispering campaign, of intrigue, innuendo and slander.”

Political rivals tried to bribe her supporters. She charged that religious mullahs undermined her and that military intelligence tapped her phones, compiled dossiers on key aides and spread false stories.

“This is political victimization,” she said.

It’s also familiar ground for Bhutto. Her courage as a political prisoner only added to her charisma as an opposition leader after Pakistan’s army strongman, Gen. Zia ul-Haq, deposed her popular father, Zulfikar Ali Bhutto, and had him hanged in 1979.

Bhutto never forgave the army for her father’s death. Apparently they never trusted her. After her election in November, 1988, the army kept control of intelligence operations and most foreign policy, particularly concerning Afghanistan and Kashmir, a disputed region claimed by India and Pakistan.

Analysts say the crunch came when Bhutto refused to give the army extralegal powers to stop violence in Sind because she did not want to antagonize her supporters there.

But Bhutto blames unnamed officials in military intelligence for bringing her down. Their goal, she says, was to discredit democracy.

“That is why military intelligence is so dangerous,” she said. “They sit there and brief the army and the opposition with fabricated, handmade and concocted stories.”

Many, however, clearly don’t believe Bhutto’s denials of corruption.

Businessmen say kickbacks and payoffs were needed for everything from export licenses to property loans. A banker complained that low-paid civil servants were driving new Mercedes cars.

“The corruption is so blatant and so arrogant,” he said. “And she never once said: ‘OK, let’s clean house, let’s look at the charges.’ ”

Bhutto insisted she asked for evidence but never got it. And she grew angry when asked about her businessman husband, Asif Zardari, known for his polo ponies and his alleged interests in government licenses for television, telephones, oil and hotels.

“My husband is an honorable man,” she said. “His businesses have not prospered. They have suffered under my government. The charges against him are false and baseless.”

The night before, Zardari had entered a downtown political dinner like royalty. Scores of burly, bearded men in traditional flowing shirts and upturned slippers lined up to hug and kiss the only man sporting an expensively tailored Western suit and the nickname “Mr. Ten Percent.”

Zardari said he expects to be “the chief target” of the special corruption courts. “Their goal is to use me to get to her,” he said. “Let them do their worst. I have nothing to hide.”

For now, Bhutto works under semi-siege in Bilawal House, presiding over party meetings, greeting well-wishers, sipping soft drinks. Aides hand out press releases and warn darkly of impending arrests by a government packed with her opponents.

On Sunday, police announced the arrests of five of Bhutto’s associates, saying they were the first cases in an investigation of corruption in her government.