Next Step : Healing Brazil : Inflation, poverty and chaos confront the nation's next leader. But two men are eager for the job.

By WILLIAM R. LONG

April 12, 1994 12 AM PT

TIMES STAFF WRITER

RIO DE JANEIRO —

In giant Brazil, problems come big.

Latin America’s largest country suffers the longest-running streak of super-inflation ever known, a decade of annual percentage increases in the hundred- and thousand-fold.

In the past 18 months, a president has been toppled and a congressional “budget mafia” has been exposed in back-to-back scandals revealing corruption to the tune of hundreds of millions of dollars.

Social problems are overwhelming. An estimated 32 million of Brazil’s 155 million people have incomes so small that they cannot afford proper nourishment. Public education and health systems are in shambles.

“Brazil is in a state of abandon,” said economist Salomao Quadros da Silva of the Getulio Vargas Foundation here. “The government is incapacitated.”

Twenty-seven million Brazilians live in two overcrowded and violent metropolitan areas--Sao Paulo and Rio de Janeiro--where powerful criminal gangs steal and kill almost at will and rogue cops are equally dangerous.

Despair is pervasive and deep. Joao Ubaldo Ribeiro, one of Brazil’s leading novelists, wrote recently that the country seems to have become “a Babel that is more and more out of control, where no one is sure of anything, where no one trusts anything and the norms that should regulate our lives change constantly.”

But in 1994, Brazil has an opportunity to try to reverse its fortunes.

This is an election year, and Brazilians are looking for a president who can lead them out of the morass. They could also throw the rascals out of Congress.

As the campaign gets under way, the current government is pressing forward with an economic stabilization plan designed to curb inflation now rocketing in the range of 45% a month, or more than 8,000% a year. Meanwhile, non-governmental groups are mobilizing to tackle social problems.

So, amid the gloom, there are glimmerings of hope, however tentative. This could turn out to be a year of potentially momentous change, Brazilian political and economic analysts say. “Or disaster,” said one. “You never know which way Brazil is going to go.”

Go back to the early 1970s for a glance at Brazil in its “miracle” era. The economy was booming; there was “order and progress,” as prescribed by the motto on the national flag. The country’s can-do optimism knew no bounds.

The Brazilian economy became the 10th largest in the world. Today, despite its economic ills, Brazil manufactures more than 1.3 million motor vehicles a year, exports turboprop airliners and is well on its way to launching rockets that can put its own satellites in orbit.

Brazil’s big ambitions were and still are backed by a solid industrial base, the world’s fifth-largest population and the rich resources of a territory bigger than the United States without Alaska. But somehow, greatness has eluded the country.

Go back to 1985 for a glance at Brazil as it returned to civilian government after 21 years of military rule. The military regime had fizzled out amid a debt crisis, growing inflation and political unrest. No one any longer believed in “miracles” of development. Democracy, however, shone with promise. Many Brazilians hoped it could solve the country’s problems.

In the nine years since, under three civilian presidents, that hope has flickered on and off, colored by progressively deeper pessimism. In different ways, civilian Presidents Jose Sarney, Fernando Collor de Mello and Itamar Franco (whose term ends at the beginning of 1995) all have delivered bitter disappointment.

Who can fix Brazil? As the country casts about for an answer, two names stand out: Luis Inacio Lula da Silva and Fernando Henrique Cardoso.

Lula is a former metalworker and union leader who has no formal education beyond the sixth grade. A moderate socialist, he leads the labor-based Workers’ Party, which includes an important faction of doctrinaire Marxists. As the runner-up candidate in 1989 runoff elections, Lula won 31 million votes to Collor’s 35 million.

Lately, Lula has been trying to broaden his political base. He and other party moderates seek to reassure business people and military officers that their plans include nothing like the late Chilean President Salvador Allende’s ill-fated drive toward socialism in the early 1970s.

And although Brazil’s military leadership is conservative, many officers share Lula’s nationalist tendencies and his fondness for state enterprises. “Lula already has the simpatia --or at least the tolerance--of important sectors of the armed forces,” said the magazine Istoe.

Cardoso is a former sociology professor who has found a second vocation in politics as a founder and leader of the Brazilian Party of Social Democracy. He was a popular senator until joining President Franco’s Cabinet--first as foreign minister, then as finance minister.

In his 11 months as finance minister, Cardoso failed to stop the dizzying flight of inflation, which rose from about 30% to nearly 45% a month on his watch. But he won congressional and public support for a plan that economists say has a chance of stabilizing prices, at least temporarily, before the first round of elections Oct. 3.

Analysts say Lula may soon be running scared. At any rate, the 30% preference rate that he was getting before Cardoso announced should not be interpreted as putting the Workers’ Party on the threshold of presidential power. It could mean that 70% think someone other than Lula should be president. Many of those who see Lula as the candidate to beat may also see Cardoso as the one to do it. Cardoso has the potential to dominate the center and right of the political spectrum, leaving Lula isolated on the left.

That clearly is Cardoso’s intention. He asked rhetorically the other day whether the Workers’ Party platform was aimed at making Brazil “a big Nicaragua? A Cuba?”

Lula, fighting to expand his share of the spectrum, accused Cardoso of furthering conservative market policies that are turning Brazil into “an Ethiopia or a Somalia.”

If the economic stabilization plan Cardoso left in place as finance minister succeeds in curtailing inflation before the elections, he may get a bonanza of credit at the polls. But the plan is not foolproof. It includes a very complex and difficult switch from Brazil’s inflationary currency to a new one. Economist Paulo Robelo de Castro says the switch will be “like changing the turbine of a Boeing while it’s flying.”

If the plan doesn’t work, whoever is elected Brazil’s next president will be back to square one on inflation. Economist De Castro warned that if the future president-elect does not inspire the confidence of Brazilians, especially the business sector, Brazil could face hyper-inflation, a chaotic condition in which prices soar completely out of control and money becomes virtually useless.

Former President Sarney’s term ended in March, 1990, with inflation exploding at a rate of 80% a month, close to hyper-inflation. Former President Collor temporarily controlled inflation with a radical stabilization plan, but prices were shooting up again when Congress impeached and suspended him on corruption charges in 1992. Franco, who has been criticized widely as an indecisive and ineffectual leader since he replaced Collor, has had no success against inflation so far.

As corruption scandals and inflation battered the country during the latter months of 1993, the press fluttered with rumors that Franco would resign or that a coup was coming. In November, Franco told the Jornal do Brasil that he had received about 20 letters from the public asking him to shut down the Congress. But he said his democratic principles barred him from a “Fujimorization”--a reference to the 1992 shutdown of the Peruvian Congress by President Alberto Fujimori.

The armed forces are in a negative mood, not only because of corruption scandals and economic crisis but also because they consider their own salaries to be insultingly low. But political analysts say no significant segment of Brazil’s army or body politic wants a coup. “There is no danger of Fujimorization in Brazil,” Gen. Zenildo Lucena, Franco’s army minister, remarked recently.

Still, military leaders have not hidden their concern over the latest corruption scandal in Congress. In January, a special congressional committee recommended that 17 members of the lower chamber and one senator be expelled for participating in a network that manipulated federal budget funds in exchange for bribes and kickbacks. Four of the accused congressmen have resigned, and the rest are to be tried in Congress starting this month.

Few Brazilians believe that the 18 on the carpet are the only corrupt members of Congress. And the scandal is only the latest of a series. Another focuses on corrupt practices in the social security system. Crooked officials and judges have siphoned off an estimated $1.5 billion a year in fraudulent pensions and other payments, according to an official investigation.

Even soccer, the national sport, is not sacred. In this World Cup year when the Brazilians are expected to contend for the championship in Southern California, the game has been tainted. Referees have accused the president of Rio’s soccer federation of asking them to fix results.

Widespread as it is, the problem of corruption is not as painful for most Brazilians as inflation, which saps the purchasing power of the country’s hard-pressed masses. Last year it reached a rate of 2,567%. Every few years, Brazil has to knock three zeros off its currency to keep calculators from going haywire with all the digits. Economist De Castro asked a young colleague to calculate compounded inflation since 1970, and the computer yielded a figure with 14 digits: 27 trillion percent.

Brazil’s corruption and inflation problems have political roots, and the political problems go deep into the country’s historical subsoil. Brazil was the last Western country to abolish slavery--in 1888--and the legacy from that relatively recent scourge has strongly and negatively influenced the country’s economic and social development during the 20th Century.

“We waited until the last minute and then we just freed the slaves and told them they were free to survive on their own with no education, no resources, no nothing,” said political scientist Amaury de Souza.

The society remains deeply divided. The dominant elite has give little thought or resources to improving health, education or criminal justice for the poor. Said De Souza: “We still have the mentality of slave owners.”

A recent study by the Brazilian Institute of Geography and Statistics, a government agency, drew a tragic map of Brazil’s misery. It said the average monthly salary is $264. Nearly one-fifth of all workers earn less than the mandatory monthly minimum of $64. On average, black Brazilians earn less than half has much as whites.

Contributing to poverty is a public education system that severely limits upward mobility for the uneducated poor. All but 2% of Brazil’s pupils repeat at least a year before completing eighth grade. About 66% drop out before eighth grade, and 2.6 million children of school age have never enrolled.

Crime thrives in ignorance and poverty. Drug-trafficking gangs control most of Rio’s famous favela slums, often engaging in deadly gun battles for turf or to keep police out. In the worst recent shootout, 12 people were killed in a fight between gangs in the Acari shantytown.

Crime breeds more crime, and many of the victims are children and adolescents. The U.S.-based group Human Rights Watch said in a report this year that 5,644 Brazilian children between 5 and 17 years old were slain from 1988 to 1991.

Many of those killed were abandoned children, “street kids,” and many of their killers were police officers working with death squads. In the past three years, about 200 police officers have been detained for suspected death squad involvement.

Such killings, a brutal reaction to burglary and theft by poor youths, is common in many cities. In early March, an advertising periodical called Hot List in the southern city of Londrina published an ad urging readers to “kill a juvenile delinquent.” The ad was signed “Victimized Merchants.”

One saving grace in recent years of government failure is the phenomenal growth of non-governmental organizations that care for street children, defend the Amazon wilderness, fight AIDS and other diseases, teach literacy and advise poor mothers. At last count, there were more than 5,000 of such groups, double the number of just two years before. An estimated 80,000 Brazilians participate in the groups.

Herbert de Souza, a social activist, has received a Nobel Prize nomination for leading a national “Campaign Against Hunger and Misery” to collect money and distribute food to an estimated 32 million Brazilians who cannot afford the nourishment they need. About 3,500 citizens committees around the country are participating in the campaign.

Historian Jose Murilo de Carvalho, a researcher with the Getulio Vargas Foundation, said Brazil’s biggest hope for salvation is the gradual perfection of its ill-formed and dysfunctional democratic system, which first opened up to mass participation only in 1945. Earlier in the century, only about 5% of the population voted.

So Brazil has had very little time to learn the “ethos of democracy,” a process that took centuries in Europe, he said. “The goal is to gain time, to avoid any breakdown of the institutional rules, to keep learning.”

Out of Control Brazilian Price Index

1980: 110.3%

1981: 95.2%

1982: 99.7%

1983: 211.0%

1984: 223.8%

1985: 235.1%

1986: 65.0%

1987: 415.8%

1988: 1,037.6%

1989: 1,782.9%

1990: 1,476.6%