The series writers made the character of Gustavo Fring a Chilean as it seemed to them general Pinochet was a frightening enough character to give a Mexican drug lord, Don Eladio pause before killing him. Unfortunately, the number of Afro-Chileans ( the group from where Gustavo would have to be) are a repressed minority in Chile. Being a fascist and somewhat of a racist, it is doubtful General Pinochet ever had any Afro-Chileans in in his inner circle making Fring's being Chilean rather pointless.
The most likely reason that Don Eladio didn't kill Fring was that he knew he had an established distribution network set up and it would cost money and time (and risk exposure) murdering Fring and then trying to either obtain his routes or start new ones. Since Fring hadn't stolen from him and since he could still use him, killing Gus' partner to show him who was in control and then allowing Fring to live, made it clear who was in charge of the operation, without causing any significant damage.