in Guatemala City, Guatemala-While the Pacaya volcano continues to smolder and rumble ominously beneath the surface south of Guatemala City, a scandal epicentered in the nation's capital threatens to erupt with cataclysmic political result. Dubbed "Guate-gate" by the local press because of its resemblance to Watergate, the scandal has all the right elements of intrigue: backroom meetings, illegal conspiracy, behind-the-scenes lobbying by powerful business interests, compromises among the nation's highest elected politicians, and-as one newspaper headline reports-"Borradas Cintas," or "Erased Tapes." The Guatemalan rendition also involves a president who is implicated in the mysterious erasure of key tape recordings. The difference is that Guate-gate involves the highest level of both the executive and legislative branches of Guatemala's fledgling democracy. It has the potential to bring down the president and vice-president, as well as key lawmakers. It also has the potential to erase important gains toward democracy since Guatemala first held elections 10 years ago and the Central American country began to leave behind its civil war-plagued past. It all started in June when an economic reform package containing an increase of the tax on alcoholic and carbonated beverages came before Congress. The law passed, but when it was published in the official records on Aug. 1, opposition National Advancement Party (PAN) lawmakers noted that the tax rates differed from those the legislature had actually enacted. In fact, the tax increases on beer and soft drinks did not show up at all. PAN officials filed a complaint with the attorney general, charging that the majority party, the Guatemalan Republican Front (FRG), had succumbed to business pressures and illegally altered the numbers. They say FRG heads had the tax on beverages halved or eliminated across the board to appease powerful liquor interests. A few elite families, including liquor titans like the Botran and Castillo families, control large portions of Guatemala's struggling economy. Leaders of the FRG do not deny the tax rates were adjusted. Instead they deny that the changes are illegal. Vice President Francisco Reyes Lopez defended the discrepancies, saying that the congressional leadership had called for a special legislative session known as "fondo de revisi?n" and that the changes were made under this procedure. The "revision fund" procedure had the earmarks of a clever fiction, and there is no official public record of such a meeting. When opposition PAN leaders went to find the official audio and video recordings of the "revision fund" proceedings, the tapes were not available. Technicians claimed that since recording materials were in short supply, the tapes in question had to be reused to record more recent proceedings. At the center of the controversy is Efrain Rios Montt, the former general and head of state who is perennially at the center of controversy in Guatemala. The general governed Guatemala in 1982-1983 after leading a military coup. By successfully putting down leftist guerrilla insurgencies, he gained a wide following among Guatemalans, particularly the country's evangelicals-who make up 25 percent of the population. (Roman Catholics account for 70 percent.) His civil defense forces curbed the long-running civil war but were also charged with widespread abuses against civilians. An internal government commission, as well as U.S. officials in both the Bush and Clinton administrations, condemned those tactics, which included the deaths of thousands of Indian peasants. Another military coup, in 1983, ousted Mr. Montt from power. He founded the FRG, a rightist party with strong support among evangelicals. The party swept elections earlier this year, winning a majority in Congress as well as the presidency. But Mr. Montt was not at the helm. Guatemala's Supreme Court declared him ineligible to run for president because he led the 1982 coup. The top post went to Alfonso Portillo. Mr. Montt did run for Congress, and became president of the unicameral legislature after the FRG took over as majority. In day-to-day politics, most Guatemalans view Mr. Montt as the party leader, and Mr. Portillo as his handpicked successor. That view now means Mr. Montt is widely believed to be the culprit behind Guate-gate. The case is an important one for Guatemala's newly constituted judiciary. After opposition party officers brought a legal complaint against Mr. Montt, the Supreme Court appointed Judge Augusto Lopez to investigate. He held a closed-door meeting with Mr. Montt and may recommend that the Supreme Court suspend immunity for Mr. Montt and other officeholders, so that they may face obstruction-of-the-law charges. FRG officials are keeping silent about Guate-gate, releasing only vague statements through spokesmen. President Portillo agreed to an interview with WORLD one week prior to the breaking scandal but broke the arrangement one hour before it was to take place, as the scandal made headlines. Instead, his motorcade rushed back and forth across town for urgent meetings with congressional leaders and military officials. Manfredo Marroquin, director of Accion Ciudadana (Civic Action), a government watchdog organization, believes the business sector has pressured Mr. Montt and the FRG for tax reductions at any cost. "When higher beverage taxes were passed, business leaders threatened to pull out of the ongoing fiscal reform dialogue," he charged. "When the businessmen told the government this, congressional leaders invented the 'revision fund' in order to change the law." According to Mr. Marroquin, Mr. Montt submitted a falsified request for a "revision fund" proceeding. If those allegations prove true, congressional leaders may lose their political immunity and will have to face trial. "I suspect they will convict congressional officials-including Rios Montt," Mr. Marroquin predicted. Mr. Portillo and Mr. Montt aren't answering such charges. Meanwhile, Mr. Portillo, who was swept into office last January with 68 percent of the vote, is struggling to maintain popular support. With Guatemala's newspapers giving the scandal front-page billing for several weeks, Mr. Portillo's record may be overwhelmed by the allegations. The Clinton administration has viewed Mr. Portillo with increasing favoritism. He surprised human-rights observers, and perhaps his own party, by alluding to human rights in his January inaugural speech and promising to investigate alleged abuses. He acknowledged more recently that the government, under past military dictatorships, was guilty of at least 150 murders. At the same time, he has moved ahead with economic reforms, including the privatization of telephone services, electricity, mail, and railroad services. Although Guatemala is a prime transit point for the import of cocaine to the United States, U.S. officials have been trying to increase drug enforcement assistance and to lift a ban on regular military aid to Mr. Portillo's government. Republicans in the House, however, would like to see further reforms to military structure before resuming aid. For those reasons, the Guate-gate scandal comes at a crucial time in the political life of Mr. Portillo. Because of the army's enduring influence-and the partial amnesty granted it under peace accords in 1996-human-rights charges rarely gain ground. So human-rights activists are eager to see the corruption charges stick. On the other hand, a political crisis could provide a vacuum for the military to reassert itself and declare its independence from presidential rule, or for leftists to return the country to violence and collectivism. Guate-gate promises at minimum to be a test of the strength of the nation's new democracy. Will Guatemala's leaders again resort to military rule, or will the testing under political fire strengthen the country's democratic and judicial institutions?