Brazil’s President Losing Fight to Halt Inflation : Governing: Eighteen months into office, Fernando Collor de Mello has been unable to implement broad reforms. His credibility has eroded.

President Fernando Collor de Mello, 42, had stopped wearing his wedding band and was avoiding his 26-year-old wife in public. Rumors of an impending separation spread through the Brazilian media.

The marital troubles appeared to be related to a financial scandal in the Brazilian Assistance Legion, an official charitable agency headed by the first lady. At legion ceremonies on two successive days, Rosane Collor broke down in tears. Meanwhile, the president attended other ceremonies and banquets where the first lady was conspicuously absent.

For some, the couple’s crisis was emblematic of the president’s staggering economic and political problems a year and a half into his five-year term. Brazil’s first popularly elected president since the early 1960s has failed resoundingly to achieve his No. 1 priority, controlling inflation, and much of his credibility as a leader has evaporated.

“Cry for us,” said the cover of a national newsmagazine that showed Rosane Collor weeping and wiping her eyes. “A family’s crisis merges with the political and economic crisis of a country.”

It is not just another country, but Latin America’s largest nation, weakened and demoralized by its worst depression on record, suffering the region’s highest rate of inflation, desperately needing stability, leadership and hope for the future.

Last week, things started looking better on the marital front, at least. Avid cameras captured Rosane and Fernando coming together in a tender embrace that signaled a happier chapter in the official soap opera.

But last week’s economic news was one more mournful stanza in a long dirge of dismal tidings. The government’s official budget for 1992 projected another year without economic growth. Inflation, which rose to a monthly rate of 15% in August, was expected to surge to the 20% range in September.

“Businessmen do not plan to invest,” said a front-page newspaper headline. Politicians and labor leaders asserted that the country was becoming “ungovernable.” Economists heaped criticism on Collor’s policies and performance.

“Collor has failed because he has been outright incompetent in the diagnosis and treatment of the economic problem,” said Paulo Rabello de Castro, an economics consultant with a doctorate from the University of Chicago.

Speaking in his downtown Rio office, De Castro said solving the main problem, inflation, requires the support of major political parties for a well-defined “national project” that inspires public trust.

“The solution is basically a political one, and that is the solution that we don’t see in sight,” he said. “The country is drifting.”

Collor is the second civilian president to disappoint Brazilians since the armed forces turned over the government in 1985 after 21 years in power. Interim President Jose Sarney’s unsuccessful struggle to stabilize the economy ended in failure, with inflation racing at more than 80% a month when Collor was inaugurated in March, 1990.

Collor, advocating free-market economic policies, had defeated Luis Inacio (Lula) da Silva of the socialist Workers Party in runoff elections the previous December. As president-elect, Collor said he would have only a single shot to kill the “tiger” of inflation.

“My objective is not to contain inflation but to finish it off,” he said on his inauguration day.

He fired his shot the next day, freezing prices and wages and also freezing most deposits in savings accounts and financial markets, a controversial move designed to shrink the money supply. Those measures temporarily detained inflation, but price controls gave way under mounting pressure and restrictions on the money supply also broke down. The tiger was soon up and running again.

Collor did not give up, but government austerity, another price freeze last February and a new team of economic officials had little lasting impact. And while the tiger raged, the Brazilian economy wilted as never before.

De Castro said that per-capita income has dropped 8% to 10% and that the value of wages paid has fallen at least 20% in real terms since Collor took office. That explains “why people are so despondent, why people are so angry,” the economist added.

Unemployment has risen only moderately because, with wages eroded by inflation, employers can afford to accommodate relatively full work forces despite depressed sales, De Castro said. But labor unions and sympathetic members of congress are pushing for wage increases.

“We are forecasting an increase in unemployment and social unrest if real wages rise,” he said.

Unrest over the shrunken buying power of wages already has included protests by military officers. But analysts say there is no threat of a military takeover because virtually no one, including the generals, sees a coup as a solution to Brazil’s problems.

“They know that it doesn’t help to purely and simply change the command or do away with freedom,” Fernando Henrique Cardoso, a Social Democratic senator, said in a magazine interview published this month.

Among solutions proposed by economists are the privatization of government-owned corporations, major reductions in the number of government employees and tax reforms that will help the government balance its budget without overburdening taxpayers. Such proposals, designed to help eliminate inflationary government deficits, have been part of Collor’s program from the beginning, but he has failed to carry any out.

Administration officials say the authority to implement those and other needed measures can come only through a constitutional reform. Collor is pushing for a package of constitutional amendments, but few analysts predict that congress will pass it.

Meanwhile, the menace of hyper-inflation looms. “Inflation seems to be skyrocketing again and getting out of control,” said an international banker in Sao Paulo.

The government has begun releasing billions of dollars in deposits that were frozen in March, 1990. If that money goes into consumption, it could further fuel inflation, so authorities hope to keep it invested in money markets and savings accounts.

“But the only way to keep the money invested is to keep high interest rates, and that’s inflationary,” the banker said. During August, interest rates on the short-term “overnight” financial market jumped from 18% a month to 25%.

The banker and other analysts are predicting that Collor will impose a new price freeze, but no one contends that it would work for more than a few weeks. Although Collor has denied any possibility of a new freeze, widespread anticipation of one causes businessmen to raise prices, said a foreign diplomat.

“There are those who raise prices even if they don’t need raising because they see a freeze coming,” the diplomat said.

Last weekend, Collor denied speculation that he might be preparing to change his economic team again. “You can’t panic; you can’t lose your way,” he said after his habitual Sunday jog. “So we have to be persistent and continue to promote the reforms that the country needs--right?--so that we can remove, pull out the root of the Brazilian inflationary process, which is the deficit.”

Most economic and political analysts agree that deep structural reforms are needed to eliminate the government deficit and finally shoot inflation dead.

But analysts say that to implement those reforms and regain the credibility needed to make any anti-inflation program work, the president needs strong support from political factions that oppose the government.

Collor was elected largely on the strength of his populist appeal to Brazil’s masses, and his own small party has few solid allies.

Some politicians are suggesting that he will need to form a coalition and share power with major parties if he hopes to keep Brazil from becoming “ungovernable.”