BY KEVIN G. HALL
  Herald World Staff

  RIO DE JANEIRO - A journalist on an investigative assignment is decapitated and dismembered. Prominent politicians are accused of ties to death squads. Warlords financed by drug money rule large swaths of territory.

  It sounds like Afghanistan or Pakistan, but it's happening in Brazil, a fragile democracy into which Americans have poured billions of dollars and considerable diplomatic effort. Both investments are now at risk from the lawlessness and the growing power of drug-financed gangs. Many Brazilians say theirs is a nation of two governments these days: an official one and a parallel state ruled by criminals.

  ''They have usurped the constitutional powers of the state,'' said Walter Maierovitch, a former Brazilian anti-drug czar. ``In a state of law, you cannot have areas
  controlled by criminals. This is an issue of national security.''

  The poor slums and shantytowns of Brazil have long been no man's lands, but the volatile mix of easily obtainable modern weaponry, corrupt police and the new violent swagger of drug traffickers are rattling a country that 17 years ago was a military dictatorship.

  In the favelas, or slums, of Rio de Janeiro, not far from the city's famed Copacabana and Ipanema beaches, drug trafficking organizations with names such as the Red Command and the Third Command rule more than one million people, about one in five Rio residents. Outside Sao Paulo, South America's largest city, gang-ruled slums such as Jardim Angela and Capao Redondo have the highest murder rates in the world. Sao Paulo's reported homicide rate of 132 per 100,000 in 2000 compares to 20 homicides per 100,000 in New Orleans, the U.S. homicide capital in 2000, according to the FBI Uniform Crime Reports.

  Traffickers close down streets and schools in their domains at will. They tax storekeepers. Power and phone companies can't work without their permission. Like
  conventional authorities, drug lords pay salaries and benefits to foot soldiers, often teenagers. If police or rival organizations kill one, their survivors receive the
  equivalent of life insurance.

  Traffickers last month seized Globo TV investigative reporter Tim Lopes, Brazil's equivalent of Mike Wallace, while he was secretly filming in territory controlled by Elias Pereira da Silva, known as ''Crazy Elias.'' Lopes was last seen alive in the Vila Cruzeiro slum.

  Police said they believe Lopes was taken to another nearby slum where he was shot in the feet, beaten and then executed with a Samurai-style sword by Crazy Elias.

  The message from Crazy Elias -- now the subject of a national manhunt -- was clear: Don't threaten the drug trade.

  Gang assailants punctuated the message by spraying Rio's mayor's office a few days later with hundreds of rounds of automatic weapons fire and two grenades that
  failed to explode. Mayor Cesar Maia pleaded vainly with the president for special emergency war powers to fight back, but policing in Brazil has not been a federal job.

  Luiz Eduardo Soares, a former security chief for the state of Rio de Janeiro, said Brazilians are suffering by the federal failure of will.

  ''The federal government is absolutely unable to carry out its responsibilities,'' he said. ``There exists a parallel power that is very strong.''

  In the northern Rio slum of Vila Cruzeiro, where Lopes was killed, residents scurried off when a reporter made a surprise visit on July 10. Foot soldiers presumably
  belonging to Crazy Elias' gang set off fireworks to report the intruder's presence. Police guarding the entrance of the slum ran up, berated a driver for allowing the
  reporter and photographer to venture into Rio's war zone, then provided an armed escort out.

  Few Vila Cruzeiro residents talked, and one young man explained why. ''We know to respect them. We know that saying anything can get your family killed,'' he said.

  A police officer guarding the slum's entrance confirmed that residents believed to have snitched have had their tongues cut out. The officer, speaking on the condition of anonymity, complained that the traffickers outgun him and his men. Besides, the policemen's $200 a month salaries are less than what a good gang foot soldier earns.

  In the neighboring state of Espirito Santo, a reputed right-wing death squad known as Scuderie Detetive Le Cocq (named after a slain Rio detective and literally
  translated as the Detective Rooster Group) runs rampant. Brazilian congressional investigators and human rights groups believe it is involved in drug trafficking and
  illegal gaming.

  The Justice Ministry's human rights division recommended early this month that the federal government intervene in Espirito Santo because of the murder of a human rights lawyer and because organized crime had infiltrated democratic institutions. President Fernando Henrique Cardoso, who leaves office in five months, overturned that effort, prompting Justice Minister Miguel Reale to resign July 8.

  Reale, a respected jurist, was Cardoso's ninth justice minister since 1994, and the revolving door at the Justice Ministry helps explain why Brazil has had no consistent battle plan against drug traffickers and organized crime.

  Cardoso published a decree on July 10 to step up drug and weapons searches at border crossings, seaports and airports. The decree also creates a state-federal task force in Rio de Janeiro and orders military intelligence in the three branches of the armed forces to support police investigations.

  But experts say the action is too little too late, and dismiss an anti-crime program announced by Cardoso two years ago as a complete failure.

  ''The federal government is absolutely unable to carry out its responsibilities,'' said Luiz Eduardo Soares, a former head of security for Rio de Janeiro state, adding that ``drug trafficking has infiltrated democratic institutions in a profound way.''

  It's much the same story for other federal authorities, according to Soares: The air force has not stopped small planes carrying drugs and weapons. The navy has failed in the same mission at sea and the small federal police force that covers federal highways is in disarray.

  The federal government wants to hire an additional 6,000 police officers to work alongside state police. But training them will take a year, said Roberto Aguiar, the
  current security director for the state of Rio de Janeiro. In the meantime, he said, ``criminals won't wait.''