Washington DC, 30 August 2022 (TDI): IMF Executive Board approves a two-year Flexible Credit Line (FCL) for Chile worth US $18.5 billion as a precautionary buffer to provide insurance against unfavorable events.
IMF Executive Board approves two-year US$18.5 billion Flexible Credit Line for #Chile as a precautionary buffer to provide insurance against adverse scenarios.
Read the full press release: https://t.co/hWLuUC7kNV pic.twitter.com/utYVUPaFtX
— IMF (@IMFNews) August 29, 2022
The FCL will be treated as a preventative measure. As the Chilean economy is facing a sharp rise in international risks following an outstanding recovery from the effects of the Covid-19 outbreak.
Furthermore, Chile’s exceptionally sound economic foundations and policies which continue to strengthen the nation’s resilience and capacity to respond to shocks, qualify it for the FCL.
The Chilean authorities also informed the Fund of their decision to cancel the existing Short-term Liquidity Line (SLL) of SDR 2.529 billion (roughly US $3.3 billion; 145 percent of quota). Given that FCL can address all types of balance of payment needs.
As part of a significant overhaul to the Fund’s lending policy, the FCL was created on March 24, 2009. The FCL is made to be flexible in addressing both actual and potential balance of payments issues, and it allows its receivers to draw on the credit line whenever they need to.
Also, the FCL will temporarily increase Chile’s precautionary reserve buffers and offer significant insurance against a variety of risks.
The risks could include a potential abrupt global slowdown, shocks to commodity prices, spillovers from Russia’s conflict in Ukraine, or a sharp tightening of international financial conditions.
Also read: IMF Reports Inflation in Latin America
Moreover, Chile is eligible for the FCL because of its stellar institutional and economic policy frameworks and authorities’ ongoing commitment to upholding very strong policies in the future.
Chile qualified for the two-year US$18.5 billion Flexible Credit Line by virtue of its very strong economic fundamentals and policies, which continue to support the country’s resilience and capacity to respond to shocks. https://t.co/hWLuUC7kNV pic.twitter.com/sByKgJiVPA
— IMF (@IMFNews) August 29, 2022
Statement by the Managing Director IMF
Kristalina Georgieva, Managing Director, following the Executive Board’s meeting on Chile said that “After an impressive recovery from the fallout of the Covid-19 pandemic, Chile is facing a marked increase in global risks.”
Furthermore, the Managing Director added that the authorities have continued to pursue highly strict policies to reduce risks and maintain macroeconomic stability while implementing ambitious reforms in the face of a tough foreign environment.
Subsequently, the FCL will offer a substantial precautionary buffer against a variety of risks with access to 800 percent of the quota. The authorities plan to approach the agreement as a preventive action and exit the arrangement when external conditions allow.
In addition, she stated that “Chile has very strong fundamentals and a sustained track record of implementing very strong policies, anchored in a long-standing structural fiscal balance rule.”
In addition, the country’s resilience and capacity to recover from shocks are supported by these very solid underpinnings and policy frameworks.
