Press Release No. 20/224

IMF Executive Board Approves Two-Year US$11 Billion Flexible Credit Line Arrangement for Peru

May 28, 2020

• The IMF approved today a two-year arrangement for Peru under the Flexible Credit Line (FCL), designed for crisis prevention, of about US$11 billion.
• Peru qualifies for the FCL by virtue of its very strong fundamentals and institutional policy frameworks and track record of economic performance and policy implementation.
• The arrangement should boost confidence, and combined with the comfortable level of international reserves, provide insurance against downside risks. The authorities intend to treat the arrangement as precautionary.

WASHINGTON, DC – The Executive Board of the International Monetary Fund (IMF) approved today a two-year arrangement for Peru under the Flexible Credit Line (FCL) in an amount equivalent to SDR 8.007 billion (about US$11 billion, equivalent to 600 percent of quota).

The FCL was established on March 24, 2009 as part of a major reform of the Fund’s lending framework (see Press Release No. 09/85). 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, upfront access without ex-post conditionality 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.

Following the Executive Board’s discussion on Peru, Ms. Kristalina Georgieva, Managing Director and Chair, issued the following statement:

“Peru’s very strong policy and institutional frameworks have helped it achieve impressive macroeconomic outcomes and reduce vulnerabilities. The inflation targeting regime in place since 2002 has contributed to low inflation and an anchoring of inflation expectations. Prudent fiscal management, supported by a fiscal responsibility and transparency framework in place since 1999, has been instrumental in lowering government debt and building fiscal buffers. Effective financial sector supervision has contributed to preserving financial stability and improving financial development. In such a context, growth has been robust—averaging nearly 5¼ percent over the past 15 years—while poverty has declined significantly.

“The Covid-19 shock poses an extraordinary challenge, which is pushing the Peruvian economy into a recession. The authorities have responded decisively by putting in place stringent containment measures and a large policy package to limit the socio-economic fallout, which has been possible thanks to Peru’s ample fiscal space and monetary policy credibility.

“The package includes a broad set of measures aimed at containing the health emergency, supporting vulnerable businesses and households, and maintaining adequate credit flows to the economy. Nonetheless, and despite its very strong policy buffers, Peru remains vulnerable to external tail risks. In particular, a prolonged Covid-19 outbreak would have significant repercussions for trade and financial flows, which could put significant pressure on Peru’s balance of payments and magnify the adverse domestic impact of the Covid-19 shock.

“The new 24-month FCL arrangement would serve as an appropriate temporary insurance to buttress confidence in the context of heightened global uncertainties. The authorities have stated their intentions to treat the FCL arrangement as precautionary, as well as to reduce access and consider exit from the FCL arrangement when the exceptional set of external risks have subsided. In that context, the insurance provided by an FCL arrangement would no longer be necessary, and Peru’s large international reserves and policy buffers would be sufficient to manage risks.”

For more information on the IMF’s Flexible Credit Line:

https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/20/40/Flexible-Credit-Line