Bachelet’s government shaken to its ideological core amid 'Nueragate' loan scandal
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Bachelet’s government shaken to its ideological core amid 'Nueragate' loan scandal

President Michelle Bachelet’s holidays have been clouded by allegations that her son, Sebastián Dávalos, and his wife Natalia Compagnon received privileged access to a $10 million loan for the purchase of 100 acres of land.

As revealed by Chile’s Qué Pasa magazine, Banco de Chile granted Caval Limited, a consulting firm co-owned by Compagnon, the loan in December 2013. This took place in the midst of Michelle Bachelet’s second presidential campaign, after the couple met with Andrónico Luksic, the bank’s vice president and one of Chile’s wealthiest individuals, leading to accusations that Dávalos used his influence to secure financing for his wife’s business.

The modest financial standing of Caval Limited relative to the multi-million loan also raised eyebrows. With just $10,000 in capital, Caval’s request was rejected by both Santander and Itaú banks before the company resorted to Banco de Chile.

“Clearly there is abuse of power,” said Gabriel Boric, an independent deputy in Chile’s Congress. “There isn’t a single small enterprise in Chile that has received a loan for $10 million with the kind of capital Caval had. It’s obvious Mr. Dávalos’ links with the President were at play.”

Dávalos, who resigned from his position as head of a government charity amid the scandal, maintains that his actions were legal and that they took place when he was working in the private sector, a posture also held by the government.

Chile’s banking authorities have ruled out any irregularities in the loan.

Public perception: the abuse of the elite

The damage, however, has been done as the case, nationally known as “Nueragate,” is charged with symbolic resonance. The Caval scandal speaks to a broader feeling of injustice in Chile, where the perception is that influence and money, instead of merit, gets people ahead.

Although Dávalos and the government have insisted the President had no knowledge of her son’s private dealings, the revelations come as a considerable blow to Michelle Bachelet, who has made the fight against inequality a pillar of her political discourse. The government’s most emblematic policy initiative remains education reform, which seeks to build a more inclusive society and create equal opportunities.

“It hits the core principle that moves our government, which is precisely to establish equality as a right, not as a privilege,” said Socialist Party Deputy Juan Luis Castro.

Osvaldo Andrade, President of the Socialist Party, suggested the scandal could have long-term political implications for Chile’s left-wing coalition, Nueva Mayoría.

“As a consequence, I think that we will somehow have to pay the price for this in the future. It’s inevitable.”

The timing is also cause for concern within the government, as the revelations come just weeks after polls showed higher approval ratings for Michelle Bachelet. Meanwhile, the President has been on vacation, fueling the media’s speculation and mounting public discontent.

Over the years, Bachelet’s son has built a fairly negative image for himself. Mocked as the “Primer Damo” (“The First Lady”), Dávalos is publicly viewed as spoiled and tempted by a life of luxury. In 2012, the same year in which Dávalos resigned from a position at the Ministry of Foreign Affairs, he was seen arriving at Michelle Bachelet’s home in a convertible Lexus, unleashing a wave of criticism on social media.

Impending investigation and political opportunism

Weakened by recent accusations that various members of the Independent Democratic Union (UDI), an ultra-right wing party, received illegal campaign funding from Penta, a holding company, the opposition has seized the opportunity to divert attention from their own scandals.

On Monday, members of the right-wing coalition Alianza filed a lawsuit alleging crimes of influence peddling and use of insider information by Sebastián Dávalos and Natalia Compagnon.

Designated as rural land, the plots bought by Caval Limited in the area of Machalí would increase in value if changes in regulation modified the land’s status from rural to urban, allowing for construction.

Plans to modify Machalí’s building restrictions started during Sebastián Piñera’s presidency in 2013, but collapsed after local authorities rejected the proposal. Efforts were revived in August 2014 by the current Regional Ministry Secretary of Housing and Urban Planning, Wilfredo Valdés, who is also targeted in the lawsuit.

The investigation will seek to clarify whether Dávalos and Compagnon used insider information in their decision to purchase 100 acres of land in an area that has risen in value due to its proximity to the lucrative “Copper Road”.

Facing pressure to repay the loan, Caval Limited has since sold the land plots to a real estate firm for $15 million, resulting in more than $4 million in gross profit.

The prosecutor in charge of the investigation, Luis Toledo, has stressed the lawsuit “doesn’t establish concrete evidence.” Still, anything incriminating government authorities could be devastating in what has historically been one of Latin America’s least corrupt countries.

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