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La Polar: financial scam in Chile
Tue, 06/21/2011 - 20:27

Roberto Pizarro

El ataque del "establishment" chileno a los Kirchner
Roberto Pizarro

Economista de la Universidad de Chile, con estudios de posgrado en la Universidad de Sussex (Reino Unido). Investigador Grupo Nueva Economia, fue decano de la Facultad de Economía de la Universidad de Chile,  ministro de Planificación y rector de la Universidad Academia de Humanismo Cristiano (Chile).

La Polar, a Chilean retail company, has planned and implemented a scam that has shocked Chilean society. Its directors and executives made up the company's accounting with the purpose of showing blue figures in the financial balance sheets and thus promoting the purchase of shares by the public, while they liquidated them at good prices in the market . It has been a national scandal, which has affected shareholders, AFP pensioners and hundreds of thousands of clients. Public faith and the country's own image have deteriorated.

La Polar executives have engaged in criminal behavior. But they are not the only ones responsible. To begin with, there is the responsibility of the political class, which instead of developing initiatives and legislation to provide reasonable bank credit to low-income families, turned retailers into quasi-banks, allowing them high interest rates and little regulation. This had two serious social impacts. On the one hand, the costs of retail credit have made the lives of the poor more expensive; On the other hand, this credit system has weakened the competitive position of retail trade, increasing its mortality.

The rise of retail in Chile is closely linked to the financial business. It began as a tool to boost sales, later becoming an autonomous business. These companies have concentrated on attacking market niches that are not a target segment for banking, achieving extraordinary returns. The financial business of credit cards is the most important component of the total income of retail companies, focused on clients in strata C3 and D; that is, the lowest income families.

In the case of Polar, the financial business became a perversion, since it not only plundered with usurious interest rates, but also used its defaulting clients as instruments to transform a virtually bankrupt company into a prosperous company. In effect, La Polar carried out unilateral automatic settlements of debts with its clients, including over-interest, late payment, collection expenses, etc. Thus, accounting transformed red figures into blue, the previous debt was postponed through renegotiation, and a new credit was shown. It is “creative accounting,” a fraud invented by the executives of Enron and Worldcom, in the US, to inflate profits, deceive the public and shareholders. Its purpose: to favor the position in the stock market so that investors continue buying shares while their executives sell them. And, at the same time, the board receives juicy profits and the executives receive bonuses for good performance.

Despite everything that has happened, the former president of Polar, Pablo Alcalde, says he has nothing to fear. It is explainable. The Chilean penal system penalizes these scams very lightly and there is no prison for these crimes, unlike what happens in the US.

The Polar board says that it did not notice the existing anomalies, but no one believes it (and they are resigning en masse). Their responsibility is unavoidable, as is that of Price Waterhouse Coopers (PWC), the department store's external auditor, which irresponsibly reviewed all the financial statements , without observing any problems. For its part, the Superintendency of Banks and Financial Institutions (SBIF), although it does not supervise non-bank card issuers on the ground, is responsible for reviewing the reports prepared by the external auditor, that is, PWC. The SBIF was perfectly aware of the high indebtedness of Polar's clients, as it was highlighted on its own website and, therefore, acted with little rigor when approving the work of the external auditor.

La Polar may not be the only company that presents fraudulent anomalies, since the perverse logic of the credit card system is present in all retail and even supermarkets. At the same time, without adequate control mechanisms, respect for consumers rests on “corporate social responsibility,” which in the Chilean capitalist system leaves much to be desired. Therefore, a rigorous investigation could well uncover cases similar to that of La Polar in other retail companies.

The former president of Chile, Ricardo Lagos, said “we must let the institutions function.” In this case you are wrong. Everything indicates that the entire institutional system is wrong and must be changed. We must modify a financial system that has promoted non-bank credit cards and that at the same time does not have the capacity to control them , especially when the SBIF figures reveal that at the end of 2010 only 23% of the cards were bank and The remaining 77% corresponded to retail. And these are intended for the poorest people in the country, precisely those who cannot access consumer loans in banks. The interest rates on these cards are four times those charged by banks. The volume of the business and its social impact should have interested governments and parliamentarians much more. Sanctions for those who commit very serious financial crimes should also have focused their interest. Unfortunately this has not been the case and now we are experiencing the consequences. The directors of La Polar must respond to the law and the political class to society. The first for fraud; the latter due to negligence.