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All dressed up and looking for investors

To drive from one end of Quito, Ecuador, to the other, you have to pass through the 17th century. Or so it might seem to first-time visitors negotiating one of the narrow streets in Quito's incomparable historic district.

Confined in a long, constricted valley some 9,000 feet above sea level, Quito looks like a bow tie from above. The narrowest point in the valleythe bow tie's knotis the site of an ancient Inca city on top of which the Spanish conquerors built one of the most important urban centers of the colonial era. The western hemisphere's first hospital was founded here in 1565 and one of its first universities in 1603. There are 15 elaborately decorated churches, convents and monasteries in the district's 72-block area, along with dozens of other priceless buildings. So rich is the district's patrimony that in 1978 it became the first urban site in Latin America to be declared a World Heritage Site by UNESCO, which called it "the best preserved and least modified historic center in Latin America."

But the district's central location has turned out to be something of a curse. As the valley on either side of central Quito was built up and developed during this century, the old "downtown" turned into a transportation bottleneck. Eventually, an estimated 300,000 people and 85 percent of the city's buses would struggle to pass through each day. Parking places became almost impossible to find, forcing cars to circle endlessly in search of a spot. The district's overloaded streets could barely contain the traffic, which often slowed to a horn-blaring, exhaust-spewing crawl.

In the early 1980s, efforts to preserve historic Quito had also come to a near stand-still. Well-intentioned plans to protect the district dated from the 1940s, when it became obvious that things were changing for the worse. The stately patio mansions once owned by Quito's wealthy classes were rapidly being abandoned for modern homes in the suburbs. Many of the old houses were subdivided into as many as 15 tiny dwellings and occupied by poor families. Retail and service businesses gradually followed their wealthy patrons to new neighborhoods. They were replaced by some 5,000 sidewalk vendors who clog the district's narrow sidewalks and three outdoor markets that produce mountains of garbage.

At first, the government attempted to halt the decline by issuing a series of laws to protect specific buildings and monuments and restrict the ways private owners of historic buildings could use their properties. In many cases, the laws backfired. Some owners purposefully neglected their buildings to hasten the moment when the only viable alternative would be to demolish them and build new structures. Others subdivided them into inappropriately small rental units. Meanwhile, practically no meaningful restoration or investment was taking place.

New approach. In the 1980s, government officials at the federal and municipal levels agreed that a radically new approach was needed. Looking at the experience of historic districts in other countries, the government decided to develop a comprehensive plan that went beyond mere restoration and aimed to revitalize the historic district's economy by explicitly seeking the participation of the private sector. The scope of the plan, which was developed with technical assistance from the IDB, was ambitious. It sought to overhaul the district's transportation infrastructure, rationalize traffic flow, eliminate trash and substandard housing, retain a mixed resident population, and create investment partnerships with commercial and residential real estate developers.

"The involvement of the private sector and civil society is what was missing from previous projects," says Eduardo Rojas, the idb's team leader for the Quito restoration program. In contrast to these earlier efforts, which were mandated from above by government officials, the new program was designed to operate at the grassroots level. In order to ensure efficiency, accessibility and transparency, the government delegated the program's management to a new, autonomous, nonprofit development corporation, the Empresa del Centro Histórico de Quito (ECH). Then, in 1994, the idb approved a $41 million loan to help finance the ECH's first six years of operations.

Although the ECH was also given funds and properties previously purchased by Quito's municipal government, it operates in many ways like a private company. It has the authority to use streamlined contracting and procurement procedures and can develop business enterprises within the historic center. However, it must eventually divest itself of all such enterprises in order to recoup costs and plow the money back into rehabilitation projects.

The ECH's essential mission is to entice private investors by taking the up-front investment risk in a development project. One of its first undertakings, for example, was to acquire the Hotel Majestic, a magnificent building that fronts the central Plaza de la Independencia and which had been subdivided into numerous small offices and mixed-use units. The ECH is planning to restore the building's façade and overhaul its interior after the selection of a private firm that would equip and operate it as a 30-room apartment hotel together with another hotel project underway at the elegant Patio Andaluz.

At the Centro Comercial La Manzana development, the ECH has gutted half a block of historic buildings, retaining their facades and other distinctive architectural features, while building modern retail shopping spaces designed to accommodate a full-fledged mall. A smaller space, known as Pasaje Baca, was redesigned as a complex of restaurants and upscale shops. Interest from potential private investors has been keen: even before the work was completed, the ECH had received more than 4,000 applications for the 110 rentable spaces in these two developments. Also in the works: a four-theatre cinema complex housed in two restored historic buildings.

Not all of the ECH's projects have a commercial dimension. Among the most impressive of its accomplishments to date is the Museo de la Ciudad (see "A Museum for the People" on this issue), built in what were recently the ruins of the four-century-old Hospital San Juan de Dios. This beautifully designed museum recreates life in colonial Quito through a series of intricate dioramas that focus on specific crafts and traditions. Other spaces are reserved for exhibits of contemporary Ecuadorian art.

The ECH does not want to turn the historic district into an upper-class cultural and shopping enclave. On the contrary, the goal is to ensure that a representative mix of lower-, middle- and upper-class people have reasons to live and work in the district. To that end, the ECH has pioneered an innovative program to rehabilitate old residential buildings currently inhabited by multiple families.

In the last five years the ECH has also paid private contractors to rebuild badly deteriorated sidewalks in the 72 blocks surrounding the main square and to construct 2,000 new parking spaces in enclosed parking centers. Other projects involve upgrading and synchronizing traffic lights, posting new road signs, and optimizing traffic patterns around a recently installed trolley bus system. The ECH is also coordinating the construction of new commercial complexes that will accommodate the thousands of sidewalk vendors that still work on central streets.

Call to come back. Despite these impressive achievements, Paulina Burbano de Lara, the ECH's young director, has found it difficult to attract private investors. "The big investors want a flow of people, tourists, who will spend lots of money in the center," she says. "Many of these investors had their offices here just 10, 15 years ago, but they have all moved to the North. It has been difficult to convince them that the center has economic potential again."

The process has been further complicated by the financial crisis that hit Ecuador following Brazil's currency devaluation in January. Ecuador's currency lost 40 percent of its value and the government had to take radical steps to protect the country's frail banking system. "This is not a great time to interest the private sector in new investments," says Gabriel Montalvo, the IDB sectoral specialist in the IDB's Quito office who is supervising the project. "In times of recession, the private sector does not like to risk capital."

But Burbano de Lara is optimistic. She points out that companies and residents now understand that the ECH is able to work with them in ways that no previous rehabilitation program ever did. The concept of public private business partnerships, practically unknown when ECH opened its doors, has now proven itself and is beginning to attract interest from serious investors.

"We are laying a solid base," Burbano de Lara says. "We might need six or eight years. But I have no doubt about the future of the historic center and the involvement of the private sector."

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