International Business : Chile’s Hot Economy Has Become a Model for the Region : Latin America: An emphasis on foreign trade has seen the nation expand more than 6% since 1985.

A young Chilean company called Tecnologia Integral designs and assembles electronic sensor systems for measuring logs in sawmills and for monitoring temperature variations in industrial ovens. Without export sales, the company wouldn’t work.

That, in a nutshell, is also the story of Chile’s dynamic economy, which has become a Latin American model of growth and stability--in large part because of its emphasis on international business.

“Chile is a country that must base itself on the foreign market,” said Manuel Antonio Manterola, general manager of Tecnologia Integral.

Tucked between the towering Andes and the wide Pacific, this narrow strip of a country might be excused for keeping to itself. But despite its geographic isolation, Chile has capitalized on international trade and investment like no other country in the region.

With a strong boost from export revenue and foreign capital, the Chilean economy has expanded an average of more than 6% annually since 1985. Growth this year is expected to be almost 8%, up from 4% in 1994.

The shock waves from Mexico’s yearlong economic crisis have had little impact in Chile compared with other Latin American countries. The Santiago stock market has sagged, but Chile’s foreign reserves reached a record level of more than $15 billion this year and investment keeps pouring in.

To assure itself of future access to foreign markets, Chile is pushing to join the North American Free Trade Agreement and to negotiate special relationships with the European Union and the Southern Common Market (Argentina, Brazil, Paraguay and Uruguay). Last year, Chile became the first Latin American country to join the Asia-Pacific Economic Cooperation.

Many Chileans hope that by increasing exports of manufactured goods and modern services, their country will become a prosperous Latin American puma, following the path of Asian “tigers” such as Taiwan and South Korea.

With a population of only 13 million, Manterola said, Chile by itself isn’t a big enough market for companies such as Tecnologia Integral. “We always believed that the foreign market was fundamental, that without the foreign market we wouldn’t work,” he said.

Since it started in 1988, Tecnologia Integral has developed and marketed several electronic products such as Logscan, an infrared scanning system that measures dimensions of logs to avoid wasteful cutting at sawmills. Of the 12 Logscans sold so far, six have been for export.

“The first system was sold in Venezuela, and then we started selling in Argentina and Chile,” Manterola said. The latest model, which costs about $30,000, is made mostly of imported parts, but the design is Chilean.

The value of Chile’s electronic exports have grown from less than $200,000 a year in the late 1980s to more than $6 million in 1994--and all industrialized exports have increased by an annual average of about 30% over the last 17 years. But the country still relies heavily on its primary exports. And 1995 has been a good year for many of them, with unusually high prices for copper and cellulose.

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Export revenues are running 47% higher this year than in 1994. Chile’s total trade--imports and exports--represents more than 40% of gross domestic product.

Imports have also expanded, spurred by demand for new machinery and technology in mining and other growing sectors of the economy. Liberal import policies have permitted the economy’s modernization with state-of-the-art capital goods and manufacturing materials.

As international business booms, so does foreign investment, which amounted to more than $3 billion in the first nine months of 1995. Another growing sign of Chile’s economic success is the investment abroad by expansion-minded Chilean companies.

“For some companies, it has been important--they make 30% or 35% of their profits abroad,” said Jaime Ale, an economist and executive with electricity distribution company Enersis, which has major investments in Argentina and Peru. Ale estimated that Chilean investment abroad totals $5 billion to $6 billion.

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Although he called that investment healthy, he criticized the Chilean government’s handling of foreign capital. By putting the investment funds into reserve instead of to work, Ale said, the Central Bank keeps the dollar exchange rate low. And that low rate means Chile’s industrial exports are less profitable and therefore less competitive.

“It’s a policy that has not permitted Chile to expand at the speed it is capable of,” Ale said.

He also criticized government spending, which he said is inflationary. To control inflation, Ale said, the Central Bank keeps interest rates high, which raises the cost of doing business and draws foreign funds into the country. More foreign funds reinforce the low exchange rate, which many exporters say is their most serious obstacle.

Roberto Fantuzzi, manager of a factory that makes kitchenware and appliances, said the policy discourages manufactured exports that create more jobs than primary exports such as copper and forestry products. As a result, he said, Chile’s economic growth is not reducing poverty as much as it should.

“If we maintain the current framework, we will never break the cycle of poverty,” he said. “With the current structure, we should all become producers of primary goods, with as little value added as possible, because the cost of labor goes up every day” while dollar returns are stagnant.

To gain advantages in the U.S. market, Chile has been lobbying in Washington to join NAFTA. The chief lobbyist is Barbara Urzua, a director of the Chilean American Chamber of Commerce.

Although Mickey Kantor, the U.S. trade representative, cited recent U.S. congressional opposition in offering little hope for completing an agreement with Chile in 1996, Urzua is more optimistic.

She figures that Bob Dole, the Senate majority leader from Kansas and the leading Republican presidential candidate, will soften his position against expanding NAFTA if he wins the nomination and may then agree to “fast-track” authority for negotiating Chilean membership.

Urzua said she hopes U.S. lawmakers will see Chilean membership in NAFTA as an important step toward building a hemispheric trade bloc. If the United States waits too long, she said, it may forsake leadership and influence in the formation of such a bloc.

“The rules may already be made when the United States gets around to it,” she said.