Against palm starch around Chilean city? (8)

I believe the answer is:

santiago

I'm a little stuck... Click here to teach me more about this clue!

'chilean city?' is the definition.
'santiago' can be an answer for 'city?' (Santiago is an example). I am unsure of the 'chilean' bit.

'against palm starch around' is the wordplay.
'against' becomes 'anti' (prefix meaning against).
'palm starch' becomes 'sago' (I've seen this in another clue).
'around' indicates putting letters inside.
'anti' inserted within 'sago' is 'SANTIAGO'.

Can you help me to learn more?

(Other definitions for santiago that I've seen before include "South American capital" , "Chile's capital" , "City" , "Capital of Chile" , "Chilean capital" .)

I've seen this clue in the Sydney Morning Herald.

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