After riding a wave of national euphoria for much of the 1990s, Chile is coming down from its high.

In 1996, a Wall Street Journal article described Chileans as the next "ugly Americans" because their roaring economy and corporate efficiency had made this nation the cocky star pupil among developing countries. Now, observers say, Chile is confronting several ego-deflating problems -- from a flagging economy to the arrest of former president Augusto Pinochet in London -- that are taking the spring out of Santiago's step.

The gloom is palpable in this gray capital of 6.5 million, on red alert for record air-pollution levels that are sending infants and the elderly to hospitals with respiratory problems.

Chile's problems are not confined to bad air. After years of hot, sustained growth, Chile has stumbled into perhaps the worse recession in South America, with economic growth down by 2.3 percent during the first quarter of 1999 compared with the same period last year. Chile has been bitterly stung by the turndown in Asia, one of its largest export markets and has suffered from the slowdown in foreign investment in Latin America following the Brazilian currency crisis earlier this year.

Chilean companies, moreover, have been making regional headlines for embarrassing flubs -- undermining the reputation they earned for ruthless efficiency while gobbling up competitors in neighboring countries. For example, a top executive of Santiago's Endesa, an electric utility once considered a model for growth as it bought out power companies in Argentina and Peru, was advised to avoid traveling to Buenos Aires after the company's blunders produced the biggest blackout in Argentine history. Why? He was told he might be arrested at the airport.

The buyers have now become the bought. A Spanish company took control of Endesa two weeks ago, but only after the Chilean owners were chided by their own government for their inability to cope with continuing massive power shortages. The constant blackouts, virtually a daily occurrence here, have left candles and matches the constant companions of millions of Chileans. "One blackout hit when I was dropping my daughter off at the movies in a shopping center," said Sebastian Brett, a Human Rights Watch investigator in Santiago. "It was a children's movie, and all the kids were left bumping around [in the dark] trying to find their parents."

The Endesa buyout tops a period during which foreign companies have acquired much of Chile's energy, telephone, cable and banking sectors.

"We once thought of ourselves as the roaring tigers of Latin America -- our companies were taking over other nation's companies, not the other way around," Chilean congressman Nelson Avila said. "But now, we have become nothing more than innocent house cats. The business community in Santiago is distraught."

Despite the gloom, many experts say that Chile's current troubles should not overshadow its achievements in the 1990s. Almost two decades of free-market reforms have helped make Chileans among the most affluent Latin Americans, and their economy is still considered healthier in structural terms than that of neighboring countries.

"The Chilean economy is going through an adjustment, only that," said Raimundo Monge, head of corporate strategies for Banco Santander in Santiago. "If you look at the underlying fundamentals in Chile, this is still one of the best places in the developing world to be."

Another source of national angst centers on Pinochet. Many wealthy Chileans have watched in horror as the former junta leader, whom supporters lovingly refer to as "Grampa," has become a captive of British authorities and the object of international scorn.

Indeed, analysts here say that Pinochet's supporters had almost convinced themselves that the world had accepted their version of the 1973 military coup that brought him to power as a necessary evil that saved Chile from Salvador Allende, a democratically elected Marxist. But that image has gone by the wayside following a ruling by Britain's House of Lords that Pinochet, 83, has no immunity from the extradition request of a Spanish judge who wants to try him on charges of torture, murder and other human rights abuses during his 17-year rule.

Even among ordinary Chileans, including some who opposed the former president, there is a sense that the case represents an insult to national sovereignty by Britain and especially Spain, Chile's former colonial master.

And they have found themselves more or less helpless to do anything.

"We've gone from arrogance to despair in the course of a year," said Ricardo Israel, director of the Institute of Political Studies at the University of Chile. "Chileans had built up this image that our human rights issues were a thing of the past, that we'd been accepted internationally and that we'd staked out our place in the world as the next great nation. And now, we're coming back down to reality. It's creating a lot of confusion and a major lack of confidence."

Aggravating the mix is an unprecedented and increasingly violent uprising by the Mapuche Indians of southern Chile and student protests against the lack of government funding for student loans.

Perhaps the most painful blow is that Chilean tennis star Marcelo Rios has lost his No. 1 world ranking since last year, falling to No. 9.

"I think collectively, Chileans are feeling worse right now than at any other point since the end of the dictatorship" in 1990, said Waldo Abarca Salazar, a board member of the Banco Santiago workers union. "It's as if, lately, everything is just going wrong."

CAPTION: Margaret Thatcher, right, talks to ex-Chilean president Augusto Pinochet and his wife. Spain's effort to try him on rights abuses has upset some Chileans.