Chile president gives corporations key roles in quake response, raising conflicts of interest

By Michael Warren, AP
Sunday, June 13, 2010

Chile pres. faces conflicts in quake recovery plan

CONSTITUCION, Chile — Before February’s devastating quake, Fernando Echeverria ran a major construction company and led Chile’s powerful chamber of builders, which successfully lobbied against government inspections that would have made companies like his more accountable for faulty structures.

Now, despite the failure of three of his newer buildings in the 8.8-magnitude temblor, Echeverria leads the reconstruction of Chile’s urban Santiago region as the governor appointed by President Sebastian Pinera.

It’s one of numerous potential conflicts the conservative president has created in his zeal to run the reconstruction like the private ventures that made him a billionaire.

Pinera also gave $15 million in no-bid contracts to three giant building-supply companies formerly run or represented by cabinet members and another political appointee — cutting out local vendors who desperately needed the sales after the quake. And he’s given private construction firms a leading role in designing new master plans for destroyed cities.

“It’s a betrayal, I would say,” said Pedro Poblete, who leads a group of neighborhood associations in the Maule region, where the quake crumbled the capital of Talca and released a tsunami that destroyed 80 percent of the heart of coastal Constitucion.

Pinera all but dismissed the potential for conflicts of interest from his appointees — nearly all from top corporate ranks — who now make decisions that could affect the bottom lines of their former companies. By sidestepping bureaucracy and demanding quick results, he delivered shelters and schools ahead of schedule after the Feb. 27 quake, which killed 521 people, left more than 200,000 homeless and caused $30 billion in damage.

“In life one always faces conflicts of interest — only the dead and the saints are removed from this situation,” he told a reporter for Argentina’s Clarin newspaper. “The important thing is to know how to resolve it correctly.”

His government has responded to the criticisms in part by adding transparency to a new tax law designed to encourage corporate donations for reconstruction, and by offering thousands of small cash subsidies to people in shelters.

But Chileans accustomed to 20 straight years of center-left rule remain suspicious of the heavy corporate role. Political power is already highly concentrated in Chile, where the president appoints not only cabinet ministers and agency leaders but governors as well. Now Chile’s economic and political powers are combined in a way not seen since the 1973-1990 dictatorship of Gen. Augusto Pinochet, who was supported by the same right-wing parties Pinera returned to the executive branch.

Under Pinochet, builders persuaded authorities to eliminate government construction-site inspections, and cities lost their capacity to enforce the codes.

It took 15 years of democracy to restore some protections as part of Chile’s much-vaunted 9.0 earthquake standard adopted in 2005. But lobbying by the builders chamber, led by Echeverria from 2002-2004, contributed to some gaping holes: Companies pay for private site studies by third-party engineers, who aren’t clearly held responsible for their results, and cities are ill-equipped to ensure buildings were built according to the plans.

Most modern construction withstood the quake, but about 40 recently-built multistory buildings failed, killing eight and leaving hundreds homeless. Two of Echeverria’s apartment buildings were left uninhabitable and a third has to be demolished.

Even Pinera’s housing and urban development minister says the quake exposed the need for stronger regulations.

“The most important thing we have to do as a ministry is to set new standards so this never happens again,” said the minister, Magdalena Matte. “Because right now, no one is responsible.”

Echeverria, who like all Pinera appointees resigned from his private positions to take the government job, has refused to address residents who fear he won’t take responsibility for the damage. He said through a government spokesman that he won’t comment on his private-sector past — even though he just left his job in March.

“He has removed himself from the businesses and sold his stock,” said spokesman Rodrigo Miranda. “He will not make any comments about his previous participation in construction.”

While studies to determine why the 40 buildings failed are still under way, victims generally suspect corners were cut to save construction dollars, particularly in the case of the Alto Rio, the 15-story apartment building in Concepcion that toppled backward and split in half — crushing eight people.

The builder, Juan Ignacio Ortigosa of Socovil S.A., now faces lawsuits alleging murder and fraud by knowingly selling substandard apartments, and resigned as president of the Bio Bio region builders chamber.

“With what happened in this earthquake, it’s clear we have to re-examine how construction is done in Chile, not just in Concepcion,” said attorney Gonzalo Contreras, whose firm represents most of the Alto Rio’s 105 families.

Ortigosa has denied knowing about any construction flaws, saying that his company hasn’t been able to identify any errors, and wouldn’t change anything in its building process.

Meanwhile, the government continues to rely on Chile’s largest corporations in the name of efficiency.

Pinera made Home Center/Sodimac, Construmart and Easy exclusive providers of building materials for the quake shelters, rather than use Chile’s transparent government procurement process, which requires open bidding online for all but the smallest purchases. His aides said it could be ignored in a national emergency.

Two of his cabinet ministers used to run Sodimac and Easy, while Pinera’s pick to run Chile’s equivalent of the U.S. Federal Trade Commission had long defended Construmart against unfair competition and price-fixing claims.

The $15 million went to companies that together control more than half the Chilean market instead of providing a much-needed boost to local economies.

“We’re just centralizing the country once again,” said Rafael Cumsille, president of Chile’s small business confederation.

Interior Minister Rodrigo Hinzpeter responded by having mayors distribute subsidies of about $185 per quake shelter that victims could spend on weatherproofing. The mayors complained they weren’t given enough money to provide for all those in need, generating a backlash. Hinzpeter declared victory anyway in a speech in a hilltop camp in Constitucion, where fresh gravel had just covered the ubiquitous mud. And he announced a new goal: moving all 40,000 families into permanent homes by next winter.

That means more profits for the same companies that lobbied for the old construction rules. Builders likely to benefit include Echeverria’s firm and Galilea S.A., a construction and real estate company run by Rodrigo Galilea until Pinera appointed him Maule governor in March.

Nearly all the Galilea homes withstood the quake, and he has promised to take care of any damage due to construction flaws.

He says he doesn’t have a conflict of interest, telling The Associated Press that his company “won’t bid for government contracts.”

“We build on our land, with our money, and if we need loans we go to private banks,” he said.

Galilea also has a vision for downtown Talca, where many historic single-story adobe homes crumbled. He would encourage private construction companies to create mixed-use buildings of four to five stories, giving homeowners two apartments — one to live in and another to rent out for income. He wants the new master plan to revive a downtown that he says was already dying before the quake.

Poblete worries that private developers will influence the planning process to maximize profits at the expense of restoring neighborhoods.

“The businessmen may have a lot of money, but sometimes that’s not enough to revive and rebuild a city where the most important thing is the people,” said Poblete, now living in a shelter on the remains of his family’s 150-year-old store. “They always talk in these moments of big buildings, but great cities aren’t built only with bricks and cement.”

According to Pinera, private sector initiatives like these can do far more than the government can in a disaster. Rather than empty Chile’s $11 billion rainy-day fund, which might have spurred inflation, he enlisted corporations to donate supplies, equipment, labor, land and money, much of it now tax-deductible under the reconstruction law he rushed through Congress. The same law — in the name of transparency — tracks every donation on a website.

But critics fear Pinera’s approach will only broaden Chile’s wealth gap — one of the widest in the world — and put big business at an even bigger advantage.

“Hopefully this man will manage things well and keep his promises,” said fisherman Enrique Vergara, huddling in a shelter after his seaside house and boats were swept away in Constitucion. “But here, money is what decides things.”

Associated Press Writer Eva Vergara contributed to this report.

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