Credit line

IMF Approves New Two-Year $5.4 Billion Flexible Line of Credit Agreement for Peru

  • The IMF today approved a two-year successor arrangement for Peru under the Flexible Credit Line (FCL), designed for crisis prevention, of approximately $5.4 billion.
  • Peru qualifies for the FCL because of its very strong economic fundamentals and institutional policy frameworks, its track record of implementing very strong policies, and its commitment to maintaining those policies.
  • As with the previous FCL agreement, the Peruvian authorities have indicated their intention to treat this new agreement on a preventive basis. The drop in credit line demand reflects better economic and external reserve positions, and demonstrates the authorities’ strategy to gradually exit the facility.
  • Washington, DC: The Executive Board of the International Monetary Fund (IMF) today approved a new two-year arrangement for Peru under the Flexible Line of Credit (FCL) in an amount equivalent to $4. 0035 billion SDR (about $5.4 billion)[1]and noted Peru’s cancellation of the previous agreement in the amount of SDR 8.07 billion. The Peruvian authorities have indicated their intention to treat the new arrangement as a preventive measure.

    The FCL was created on March 24, 2009, as part of a major reform of the Fund’s lending framework (see press release n° 09/85). It allows its beneficiaries to draw on the line of credit at any time and is designed to respond flexibly to actual and potential balance of payments needs to help build market confidence. Drawings under the FCL are not phased or tied to ex post conditionality as in regular IMF-supported programs. This broad initial access without ex post conditionality is justified by the very solid political fundamentals and institutional policy frameworks and the sustained track record of the FCL-eligible countries, which gives the assurance that their economic policies will remain solid and that they will respond adequately to the balance-of-payments difficulties they encounter or could encounter.

    Following the Board’s discussion on Peru, Mr. Kenji Okamura, Deputy Managing Director, made the following statement:

    “Peru’s very strong economic fundamentals and policy frameworks – anchored by a credible inflation targeting framework, a flexible exchange rate, effective financial sector supervision and regulation, and a strong medium-term fiscal framework – have enabled the authorities to provide a comprehensive and rapid response to the COVID-19 pandemic and foster growth. As a result, and stimulated by robust external demand, favorable terms of trade and a strong increase in construction, the he Peruvian economy has recovered strongly in 2021, registering one of the highest growth rates in the region.

    “Nevertheless, the Peruvian economy remains exposed to high risks, in particular due to renewed waves of the COVID-19 pandemic, the slowdown in economic activity in the main trading partner countries, the war in Ukraine, the tightening global financial conditions and political uncertainty The new arrangement under the flexible credit line will continue to play an important role in supporting the authorities’ macroeconomic strategy by providing insurance against tail risks and boosting confidence steps.

    “The authorities intend to treat the arrangement as a precautionary measure and to terminate the arrangement when external conditions permit. The lower level of access requested – 300% of the quota, compared to 600% in the FCL approved in 2020 – as part of the authorities’ strategy to phase out the use of the facility reflects the country’s very strong fundamentals, including the additional cushions built with the accumulation of international reserves, as well as the declining needs of external financing, since the 2020 agreement.

    [1]Dollar amount based on Special Drawing Right (SDR) quotation of 1 USD = 0.74121 SDR on May 27, 2022

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