CHILE: AT HALF-WAY POINT IN TERM, PRESIDENT RICARDO LAGOS BATTLES CORRUPTION SCANDALS.

Chilean President Ricardo Lagos marked the half-way point of his presidency on March 11 buffeted by government-linked scandals. The president said that, despite the recent corruption scandals, Chile continues to benefit under both his and the governing Concertacion coalition's leadership.

"The Concertacion is proud of what it has done," said the president in an interview with Radio Cooperativa. "We still have tasks pending for the next three years, but the most important thing is that the parties of the Concertacion alliance define a political project for the 10 or 15 years following 2005."

Among the Concertacion's various accomplishments, Lagos mentioned the "normalization" of relations between civil society and the armed forces, renewed cooperation between the government and business sectors, and an improved relationship with the Catholic Church.

The president also spoke of the nation's economic growth in recent years, saying that, for the first time, more than 250 thousand Chileans have unemployment insurance and half a million young people enjoy the benefits of higher education. He also touted of the free-trade agreements recently signed with the European Union (EU), the US (see NotiSur, 2002-12- 20), and South Korea.

"We have firm indicators in every area of the country pointing to solid progress and advancement in infrastructure, in judicial reform, and, for this year, we will continue improving health-care through the AUGE [Acceso Universal con Guarantias Explicitas en Salud] reform plan," he said.

The day also marked the Concertacion's 13-year anniversary in power following the 17-year dictatorship of Gen. Augusto Pinochet (1973-1990). The coalition comprises the Partido Democrata Cristiano (PDC), the Partido Socialista (PS); the Partido por la Democracia (PPD); and the Partido Radical Social Democrata (PRSD).

Along with citing accomplishments, Lagos also referred to the ongoing government-corruption scandals and the recent collapse of the Inverlink financial holding company. Promising to continue to fight government corruption, Lagos said it was necessary for legislators to pass a series of government-backed measures aimed at regulating government and campaign spending. Because of the scandals, Lagos suspended the official celebration of his three years in office.

In a radio interview, Lagos said newly discovered irregularities in the Ministry of Public Works (Ministerio de Obras Publicas, MOP) were disturbing. Carlos Cruz, the former head of MOP, and the ministry's former financial officer Sergio Cortes were arrested Jan. 7 and later charged with defrauding the Treasury of approximately US$415,000. They are accused of siphoning funds through the bogus Gestion Territorial y Ambiental (GATE) company. If found guilty in the MOP-GATE case, the men face up to five years in prison.

Lagos makes Cabinet changes

Lagos marked the half-way point in his term by swearing in several new ministers appointed as part of a major reorganization of the Cabinet. Interior Minister Jose Miguel Insulza, of the PS, was retained in his post despite widespread speculation to the contrary. Other key ministers given a vote of confidence included Finance Minister Nicolas Eyzaguirre, Foreign Relations Minister Soledad Alvear, and Defense Minister Michelle Bachelet.

The most radical change in the Cabinet was the appointment of Luis Bates Hidalgo (independent) to the Department of Justice, where he replaced Jose Antonio Gomez of the PRSD. Bates, ex-president of the Consejo de Defensa del Estado (CDE), has a strong anti-corruption reputation and is expected to take control of the ongoing investigation into the MOP-GATE scandal.

Heraldo Munoz of the PPD was replaced as secretary- general to the

government by Francisco Vidal Salinas, also of the PPD. Sergio Bitar Chacra (PPD) took over from Mariana Aylwin (PDC) as the minister of education; Pedro Garcia Aspillaga (PDC) replaced Osvaldo Artaza (PDC) as minister of health; Francisco Huenchumilla Jaramillo (PDC) took over from Mario Fernandez as secretary-general to the president; Andres Palma (PDC) replaced Cecilia Perez (independent) as minister of planning and cooperation. Perez replaced Adriana Delpiano (PPD) as the head of the National Ministry for Women.

In welcoming the newcomers, Lagos outlined his goals for the second half of his term in office, which included constitutional reform, improved transparency in government spending, and reforming campaign-finance rules. He also pledged to continue reforming the penal system and to push to have his controversial Plan AUGE health-care reform approved during the first semester of this year.

Scandals tarnish country's clean image

The latest scandals have taken their toll on the Lagos administration and have damaged Chile's image as a country free of serious corruption.

The "caso coimas" (bribery case) scandal has led to the arrests of Deputies Cristian Pareto and Jamie Jimenez, formerly of the PDC, and Victor Manuel Rebolledo, recently expelled from the PPD. All are charged with bribery.

Caso coimas whistle blower Carlos Filippi claims he used an intermediary to pay Rebolledo over US$16,000 in exchange for the deputy's promise to guarantee a vehicle-inspection center concession (see NotiSur, 2002-11-15).

On Jan. 14, Rebolledo, Pareto and Jimenez, along with Deputies Juan Pablo Letelier and Eduardo Lagos, were stripped of their legislative immunity by the Corte Suprema. Although Judge Carlos Aranguiz made no moves to arrest either Lagos or Letelier, his investigation appears to be closing in on Letelier, who continues to maintain his innocence despite new allegations against him.

Aranguiz has heard testimony from Maria Bravo, former secretary in the regional office of the Ministry of Transportation, who reportedly accused Letelier of having compromising ties with vehicle-inspection center owner Oscar Valenzuela. Bravo faces charges that she was part of a scam in the late 1990s that involved the forgery, manipulation, and illegal sale of colectivo taxi-operating licenses.

Letelier says he never met Bravo before a meeting arranged by Judge Aranguiz. He says her accusations are part of a plot for revenge by Filippi. Judge Aranguiz says, however, that he has enough evidence implicating Letelier in wrongdoing to continue his investigation.

Inverlink scandal compounds Lagos' problems

The latest scandal centers on the theft and transferral of more than US$107 million in certificates of deposits (CDs) from the state agency Corporacion de Fomento de la Produccion (CORFO) to Inverlink, a financial holding group.

So far, 11 Inverlink and CORFO executives have been detained by investigating Judge Patricio Villarroel. They include Inverlink president Eduardo Monasterio, who has admitted responsibility for the fraud, executive and major shareholder Ignacio Wulf, and former chief stockbroker at CORFO Javier Moya. Judge Villarroel also ordered the arrests of Patricio Reyes, former Inverlink accountant, and former Inverlink trader Marcelo Munoz. Judge Jorge Colvin ordered the arrests of Inverlink executives Luis Hernandez, Patricio Collarte, and Eduardo Tapia.

Monasterio turned himself in to police after the warrant was issued for his arrest. The judge issued the warrant when it became known that Inverlink had used the stolen certificates as collateral to sell a series of short-term financial instruments to local mutual funds and other institutional investors. Moya is accused of taking the certificates from a CORFO safe before endorsing them and passing them on to Inverlink.

Gonzalo Rivas, CORFO's executive vice president, resigned under pressure. Rivas, son-in-law of President Lagos, was appointed by former President Eduardo Frei (1994-2000).

As the scandal spread, there were calls across the political spectrum for the resignation of Carlos Massad, president of the Banco Central. Massad's personal secretary Pamela Andrada sold confidential information to Enzo Bertinelli, general manager of Inverlink, with whom she had a romantic relationship. Both Andrada and Bertinelli have been arrested.

The Inverlink scandal raises questions about financial regulation and affects thousands of small mutual-fund investors. Wall Street analysts say the political fallout could further damage Chile's reputation as a safe place to invest. "At the center of all this is inefficient political management," said a Chilean Wall Street economist.

Finance Minister Eyzaguirre downplayed the risk of a banking crisis as a result of the scandal and called for Santiago's financial district to treat the money involved as "a drop in the ocean."

Economy Minister Jorge Rodriguez Grossi has rejected calls for his resignation over his handling of the multi- million dollar Inverlink-CORFO fraud scandal.

Following a meeting at the Moneda with President Lagos and his economic advisors to discuss the case, Rodriguez said the meeting was "to look for the most effective ways to protect CORFO and to keep the market functioning in a fluid way. The courts will make sure that whoever has been a victim of theft will be compensated and that everything that has been stolen from the state will be returned."

On March 12, Eyzaguirre confirmed an agreement among the administration, various ministries, CORFO, and banking representatives by which CORFO would temporarily assume the cost of the losses it suffered from the fraud by Inverlink. He said that the government would ask the Justice Department to lift the receivership on the stolen documents. "With this we are guaranteeing the normal flow of these capitals," said the minister.

Meanwhile, the president is weighing the impact that the collapsing Inverlink company will have on the Chilean economy.

"So far, none of this has affected [the economy], which speaks well of the stability of the country," said Lagos. "We have an economic situation that is sufficiently solid, and we have a risk rating that is by far the lowest in Latin America."

Administration receives small victory

The Corte Suprema handed the Concertacion coalition a small political victory on March 21 when it voted 16-3 to uphold the Jan. 31 decision by the Antofogasta Court of Appeals to strip Deputy Mario Escobar, formerly of the right- wing Democratic Union Party (UDI), of his legislative immunity.

The decision means that Escobar will be investigated for receiving, in 1996, over US$27,000 in public funds to purchase 120 alpacas when he headed the department of culture and tourism in Calama, 1,564 km north of Santiago. He apparently bought only 69 animals, failing to account for the rest of the money. The decision also bars him from voting on legislation within the Chamber of Deputies.

The decision is good news for the Concertacion alliance, which lost five votes in the Chamber of Deputies when Deputies Rebolledo, Letelier, Lagos, Jimenez, and Pareto were stripped of their legislative immunity. The loss of those votes left the Concertacion with only a one-vote majority.

Members of the UDI have downplayed the decision, arguing that the loss of Escobar's voting power in the Chamber does little to alter dynamics between the Concertacion and the opposition. "Everything stays the same," said UDI Deputy Patricio Melero, citing the recent election of PS Deputy Isabel Allende as president of the Chamber as evidence of Concertacion control in the lower house of Congress. [Sources: La Opinion (Los Angeles), 03/03/03; CNN, 03/10/03; Notimex, 02/26/03, 03/11/03; Associated Press, 03/11/03; El Nuevo Herald (Miami), 02/08/03, 03/12/03; The Financial Times (London), 03/12/03; The Santiago Times, 02/10/03, 02/28/03, 03/03/03, 03/10-12/03, 03/18/03, 03/21/03; Spanish news service EFE, 03/10/03, 03/12/03, 03/21/03]