Who is profiting from rebuilding Chile?

SANTIAGO, Chile—Only saints and the dead are free from conflicts of interest, Chilean President Sebastian Pinera told an Argentine paper. And if his first month in office is any indication, Pinera is nowhere close to sainthood.

Even before the earthquake struck, many had predicted the right-wing billionaire’s vast business interests would be a thorn in the side of his government. Then two weeks before Pinera took office, the 8.8-magnitude quake forced him to scrap his original plans for changing Chile.

Since then, Pinera has haphazardly tapped into the business world to fill in government positions, because, he says, that’s the only way to get people with expertise and experience. However, in doing so, he has disregarded the potential conflicts of interest his appointees are dragging in with them, especially those who will have a hand in the reconstruction effort.

To fill his cabinet, he chose largely conservative economists who had served as owners, managers or board members of major corporations. And in appointing regional authorities in the quake-stricken areas, he turned to owners and managers of construction firms with a potential financial stake in the rebuilding process.

The quake and tsunami severely damaged 260,000 homes and 4,000 schools. About 70 percent of hospitals in the quake-affected area were devastated, as well as roads, highways, churches, airports, stadiums, courthouses, electricity and telecommunications networks and military installations.

As of the first week of April, about 60 percent of public infrastructure damaged by the quake had been repaired, and 11,000 emergency housing units had been built, almost half by the Catholic NGO “A Roof for Chile.” The government has promised to set up 40,000 of these one-room wooden shacks by June 11 for the estimated 800,000 homeless.

The government assessed damages and losses at $30 billion, and taking insurance into account, estimates total public spending for reconstruction will come to $12 billion. The government has yet to announce how reconstruction will be financed, but has hinted at moderate tax increases, budget reallocations, the sale of non-vital assets, public and private debt and tapping into the state’s $12 billion rainy day fund invested abroad.

Over the past 30 years, privatizations and reduced public spending have shrunk the size and capabilities of the state. So the government has few alternatives than to turn to the private sector to carry out much of the reconstruction effort. Construction and engineering firms and producers of building materials are already delighting in the earnings expected for year’s end, and for several years to come.

And the government has made the deal for them even better.

First, it offered monetary incentives to companies for each of the emergency housing units they could produce during April to meet the 16,000 target by the end of the month.

Critics said the money could have been better spent. They pointed out that the construction companies are already going to make much more than they expected, and that government funds would be better directed to the homeless than to private businesses.

Then, the Interior Ministry allocated $15 million in equal parts to three major hardware companies that would be the sole suppliers of all building materials for a reconstruction plan called “Manos a la Obra” (“Let’s Get Working”). The plan involves transferring these funds to 239 municipal governments, which would buy construction materials from the three companies and distribute them to an estimated 40,000 families needing to repair or rebuild their homes.

There was no bidding process, and the government claimed it chose those firms because they had enough stock and logistics to cover the entire quake area and get the materials there fast. The companies—Home Center/Sodimac, Construmart and Easy—control more than 50 percent of the market.

Small- and medium-sized businesses and hardware stores in the regions affected by the quake objected vocally to the plan, claiming that if the municipal governments were allowed to buy these materials from local stores, it would help boost the severely depressed local economy.

“Small and medium businesses are ignored and the $15 million are handed out to big economic groups. The government is strengthening economic concentration,” said Rafael Cumsille, president of the Confederation of Small Businesses.

Following the uproar, the government announced it would dish out additional funds for local businesses to also supply materials.

Moreover, Foreign Minister Alfredo Moreno had sat on the board of directors of Sodimac until a couple of days before he joined the government, and Mining Minister Laurence Golborne was general manager of Cencosud, owner of Easy, until last year.

Moreno and Golborne are two of several appointees whose ties to private businesses have been questioned. In the Maule Region located 105 miles south of the capital and hard hit by the quake, the president appointed Rodrigo Galilea to the regional authority post. Galilea is general manager of an engineering and construction firm owned by his family that operates in that same region.

In the Santiago Metropolitan Region, which also requires significant reconstruction, Pinera named Fernando Echeverria, former president of the Chilean Chamber of Construction and owner of a construction company.

“Pinera clearly opted for business, and not the political right, in recruiting ministers and important government officials. And since then, he has made decisions that are logical for the private sector, but not necessarily for the public interest,” said political scientist Ricardo Israel, who publicly supported Pinera in his bid for the presidency.