A SPECTACLE of political mudslinging unseen in Chile since the military handed over power to an elected, civilian government in 1990 has been touched off by seven Chilean banks trying to avoid paying off outstanding debt to the Central Bank here.
Opposition leaders (some of whom are shareholders in the banks) have attacked the government for acting in bad faith, while government leaders accuse them of conflict of interest and trying to rip off the Central Bank.
Chile's banks, with an average return of 22 percent, assets worth about $40 billion, and efficiency rates comparable to Canada or the US, are doing extraordinarily well at the moment. Probably no other country in Latin America could afford this kind of tempest-in-a-teapot over its banks. But after 11 straight years of solid economic growth, the Chileans aren't worried.
The problem of the subordinated debt goes back to 1982-83, when the military government pumped about $8 billion into the banks, saving them from collapse.
At the time, the government ended up controlling about two-thirds of the banking system and pundits joked about ''the military road to socialism.'' In 1989, just before returning power to civilian government, the military took measures to avoid any further government intervention in the banking system.
The 1989 law defined the banks' ''subordinated debt,'' owed to the Central Bank, and fixed the annual repayment as a percentage of the banks' profits, with no final deadline. To help the banks get through the crisis, it also allowed them to turn some of those profits back into shares at book, rather than market, value.
Patricio Arrau, an economist and government adviser during most of the negotiations over the subordinated debt, says the debate has gotten out of hand. ''The government, the opposition and the banks involved have to reach some kind of political agreement,'' he says. ''Otherwise we'll face a permanent conflict which will damage the country's image.''
Of the 13 banks affected, all but seven have taken advantage of the generous conditions and Chile's booming economy to pay off their debt. Just two banks, Chile's biggest, the Banco de Chile and the Banco de Santiago, owe 70 percent of the remaining debt, totaling $4.5 billion.
In recent years, both banks have used the clauses designed to help them get back on their feet, to reduce their payments. They've simply issued additional shares at book value, rather than their higher market value, reducing the total earnings entered on their books and thus the amount repaid to the Central Bank.
In 1994, says Roberto Zahler, president of the Central Bank, this cost the Central Bank $100 million. And if the government doesn't act fast, that could rise to $200 million this year.
Earlier this month, Mr. Zahler announced that the Central Bank would sue banks issuing new shares, if the issue isn't resolved.
The government thought it had stuffed this legal loophole and made provisions for payment within 40 years by passing a new law last January. But as soon as Congress, including many opposition members, approved the bill, 31 opponents rushed off to the Constitutional Tribunal to ask for the new bill's suspension, on the grounds that it violated private- property rights.
President Eduardo Frei wasted no time signing the bill into law.
Undaunted, the Constitutional Tribunal, in a divided opinion, last month declared the law illegal.
After the Tribunal's decision, the Christian Democrats, the largest party in the governmental coalition, accused the Tribunal of acting illegally. Their allies in the Socialist Party said the Tribunal had ''legalized a shameful expropriation of the national budget, by financial groups.''
''A minority in the House has successfully imposed its will over that of two powers of the State, using an organization that has always been controversial,'' said Camilo Escalona, president of the Socialist Party.
Earlier this month, the government announced that it would freeze much-needed legislation to modernize the banking system until the subordinated debt issue is resolved, while opposition political leaders admitted that the outstanding debt is hurting the Central Bank and that a solution must be found quickly.
The war of words has subsided as the ministers of finance and the economy, the president of the Central Bank and the government's top financial wizards rush off to Valparaiso daily to huddle with members of the Congress's Finance Commission and hammer out a solution.