The Executive Board of the
International Monetary Fund (IMF) has approved a successor two-year arrangement for Peru under the Flexible Credit Line (FCL) —designed for crisis prevention— in an amount equivalent to SDR 4.0035 billion (about US$ 5.4 billion).
Additionally, the IMF noted the cancellation by Peru of the previous arrangement in the amount of SDR 8.07 billion.
According to the global institution, the Peruvian authorities stated their intention to treat the new arrangement as precautionary.
Following the Executive Board's discussion on Peru,
IMF's Deputy Managing Director Kenji Okamura said that 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 solid medium-term fiscal framework— have allowed the authorities to deliver a comprehensive and timely response to the COVID-19 pandemic and promote growth.
"As a result, and spurred by robust external demand, favorable terms of trade, and a surge in construction, Peru's economy recovered strongly in 2021, registering one of the highest growth rates in the region," he stated.
Nevertheless, he said, the Peruvian economy remains exposed to elevated risks, including from renewed waves of the COVID-19 pandemic, slowing economic activity in key trade partner countries, the war in Ukraine, tighter 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 bolstering market confidence," the IMF's deputy managing director remarked.
Okamura noted that the authorities intend to treat the arrangement as precautionary and exit the arrangement when external conditions allow.
"The lower level of access requested —300% of quota, down from 600% in the FCL approved in 2020— as part of the authorities' strategy of gradually phasing out the use of the facility is a reflection of the country's very strong fundamentals, including the additional buffers built with the accumulation of international reserves, as well as the decline in external financing needs, since the 2020 arrangement," he added.
About FCL
The FCL was established on March 24, 2009, as part of a major reform of the Fund's lending framework.
It allows its recipients to draw on the credit line at any time and is designed to flexibly address both actual and potential balance of payments needs to help boost market confidence.
(END) NDP/RMB
Published: 5/28/2022