arrangement.
Thus, the Executive Board reaffirmed that Peru's very strong macroeconomic policies and institutional policy frameworks, sound economic fundamentals, and track record continue to warrant access to FCL resources.
The two-year arrangement was approved on May 28, 2020, for an amount of SDR 8.007 billion (about US$11 billion or 600% of quota).
Peruvian authorities have reiterated their intention to treat the arrangement as precautionary.
The FCL is designed for crisis prevention purposes as it provides the flexibility to draw on the credit line at any time during the period of the arrangement (one or two years), and subject to a mid-term review in two-year FCL arrangements.
Disbursements are not phased nor conditioned on compliance with policy targets as in traditional IMF-supported programs.
This large and upfront access with no ongoing conditions is justified by the very strong track records of countries that qualify for the FCL, which gives confidence that their economic policies will remain strong.
"Peru's very strong macroeconomic policies and institutional policy frameworks and solid track record of prudent policy settings have underpinned strong growth and stability over the past several years and helped the country navigate the challenges posed by the COVID-19 pandemic,"
Deputy Managing Director Mitsuhiro Furusawa stated following the Executive Board's discussion on Peru.
"A sound inflation-targeting regime,
a credible fiscal framework and low public debt, and sound financial sector supervision and regulation have allowed the country to deploy a robust policy response to mitigate the socio-economic impact of the pandemic while maintaining strong access to international capital markets," he expressed.
According to the officer, "following the worst economic contraction in 30 years, economic activity is expected to rebound this year as COVID-19 vaccines are rolled-out, and the pandemic is gradually brought under control."
"Nevertheless, the economic outlook remains highly uncertain. Despite the rapid recovery in some large economies and improved commodity prices, external risks remain elevated.
The Flexible Credit Line (FCL) arrangement, along with sizable international reserves, low public debt, anchored inflation, and a sound financial system have provided the authorities with valuable insurance in a period of unprecedented uncertainty and volatility," he added.
Furthermore, the officer affirmed that "the FCL will continue to play an important role in supporting the authorities’ macroeconomic strategy, by sustaining market confidence and providing a valuable buffer against tail risks. The authorities intend to continue to treat the arrangement as precautionary and to phase out its use as external conditions allow."
"An appropriate communication strategy will be important to prepare markets for this step," he said.
For his part, Peruvian Economy and Finance Minister Waldo Mendoza affirmed that "this credit facility is a preventive tool to face potential periods of high volatility and uncertainty. Its approval is a recognition of the solvency record and the good macroeconomic management that the Peruvian economy has proven over the last 30 years."
(END) NDP/MVB