Henry Kissinger once said, "Chile is a dagger pointing straight at the heart of Antarctica," mocking the South American nation's supposed lack of strategic significance.

Yet, since Kissinger devoted a full chapter to Chile in each of the first two volumes of his memoirs, presumably he attached some relevance to that long strip of land, often described as having "a crazy geography but a sane history."

Scotiabank's recent $1 billion investment there (the biggest purchase abroad in its 175-year-old history) in buying Banco del Desarrollo, followed shortly after Prime Minister Stephen Harper's visit to Santiago last
July.

So, why is Chile getting so much attention?

It's not because of size-- neither in population nor in land mass does Chile rank very high within South America (in both, in a rather modest seventh place). Neither is it location. Rather, it is what has been happening there over the past 17 years that has made not just Canada but much of the rest of the world pay heed.

Within the Western Hemisphere, Chile is the country with the highest per capita income after Canada (if way below the latter) at $9,000 US, and well-poised to make the great leap forward into the condition of a developed nation. The Organization for Economic Co-operation and Development (OECD) has recently invited it to join this "rich countries' club," ahead of Brazil.

Last year Chile exported US$ 60 billion, half of what India did, and almost seven times what it did in
1990. The Financial Times describes it as "the best performing economy in Latin America." In this period it has attracted some $70 billion US in foreign direct investment (FDI), leading to an FDI-stock-to-GDP ratio of 65 per cent, one of the highest in the world. It has also had the best growth rate of any country outside Asia, with an average of 5.6 per cent a year, projected to reach six per cent this year.

Right now the government's biggest "problem" is what to do with a fiscal surplus of $ 11 billion US in
2006, that shows no signs of shrinking in 2007. Rather than spending it willy-nilly, in the best tradition of the region, it is parking it abroad in a special offshore fund modelled after the Norwegian one, thus avoiding the dangers of "Dutch disease," and allocating only the interest to current expenditures. This should avoid the pitfalls of that classic Latin American syndrome--the good times linked to the upward swing of the commodity cycle, and the bad ones that ensue on the downturn.

How come Chile is doing so well?

It has a highly educated population. The literacy rate is 95 per cent; the primary education coverage reaches close to 100 per cent, the secondary to 90 per cent and tertiary to around 30 per cent, but then many countries do so, and their performance is below par.

Chile is richly endowed with natural resources. It is the world's largest producer and exporter of today's "red gold," -- copper -- and has one fourth of the world's reserves, as well as other mineral riches. The Andes mountains, which run along the world's longest border (5,300 kilometres) with Argentina,
have been described as "the largest open pit mine in the world" -- and some first rate agricultural land ("a
hothouse where God forgot the roof," as one wine critic put it).

Yet, we are all familiar with the so-called "resource curse," the paradox that countries richly blessed with natural resources (most notably oil), tend to underperform.

Mainly, Chile has done well because of its imaginative and well-crafted public policies, within a framework of macroeconomic stability (including that rare commodity in that part of the world, a truly independent central bank), that has cut back inflation from 27 per cent in 1990 to the two to three per cent range, in areas as varied as public infrastructure, capital controls and international trade policy. Chile's export-led development approach has relied on these policies to move from strength to strength.

In 1996, Canada and Chile spearheaded free trade policies by signing the first free trade agreement between North and South -- only in 2003 did Chile sign one with the United States. (It has 54, right now, more than any other country). As the preeminent mining country in the world (one third of all the FDI to go into mining in the next five years is projected to go to Chile), it has been especially attractive to Canadian mining companies, of which 60 have a presence there. In recent years, Canadian companies have invested $7 billion in Chile, and Canada is today the third largest investor there, after the U.S.
and Spain.

Perhaps more importantly, Chile is a good country to do business with. The ultimate reason for this kind of economic performance is the existence of a polity that works. According to a recent World Bank Institute study on governance, on key dimensions such as voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law and corruption control, Chile not only emerges at the very top in Latin America, but with an average score higher than that of OECD member countries.

In foreign policy, the government of President Michelle Bachelet, the first woman elected head of state in the Southern Cone, has prioritized working together not only with Latin America, but also with so-called "like-minded" countries, like Canada, the Nordic nations and those of Australasia. These share a certain outlook in international affairs on issues like multilateralism and the role of the UN, the rule of international law, and human rights.

In Haiti, Chile took the lead in Latin America in sending troops in March 2004, joining the United States, Canada and France, thus paving the way for the first UN peacekeeping operation manned by a majority of Latin American troops. Some 600 Chilean "blue helmets" are there to this day, in a country that is high-priority to Canada.

As Canada builds on the ambitious hemispheric policy it kick-started in the '90s, and expands its particular niche in international affairs, that of a key bridge in North-South relations, it is difficult to find a Latin American nation more suited than Chile for the sort of strategic partnership needed to face the common global and regional challenges thrown up in a hemisphere buffeted by currents of change.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.