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The Central Bank of Chile confirmed this afternoon that he requested the International Monetary Fund (IMF) a flexible line of credit by $ 23.8 billion: some 19.6 billion Chilean pesos.
According to the issuing institute indicated on its website, “access to this line will complement international reserves and increase the availability of immediate access liquidity by more than 60%.”
IMF Managing Director will recommend approval of a flexible credit line for Chile for US $ 23.8 billion, requested by the Central Bank https://t.co/GI5T3S499f @FMInews @IMFNews
– Central Bank of Chile (@bcentralchile) May 12, 2020
The Central explained that “it is a precautionary facility, reserved for countries with very solid macroeconomic fundamentals “, which “is not subject to ex post conditionality” and which “provides a significant support to face an eventual worsening of the global crisis caused by Covid-19 “.
This information is known a few days after the version that the Government had requested a loan from the IMF circulated; which was denied at the time by himself Finance Minister Ignacio Briones.
🔵 The last: Central Bank requests a preventive credit line from the IMF for 23 thousand 800 million dollars. Money is to ensure liquidity in the economy, NOT for government use. @Cooperative
– Felipe Gallegos (@ FelipeGallegos7) May 12, 2020
Favorable welcome
The Central Bank – which is a autonomous institution of the State and is governed by a constitutional organic law- explained that “in a statement issued today, the International Monetary Fund (IMF) announced that the The agency’s executive board met in an informal session to discuss the request. “
This corresponds to “a two-year Flexible Line of Credit (FCL) for an amount of US $ 23.8 billion (SDR 17,443 million)”; an instrument that “aims to protect economies from eventual external shocks by providing broad and up-front access to IMF resources, without ex post conditions “.
“In accordance with Chile’s strong policy framework and track record, IMF Managing Director Kristalina Georgieva will recommend approval of the agreement request to the agency’s Executive Board FCL when soon this instance formally considers the request of the Central Bank“, indicated.
“It is not intended to finance public spending”
The note highlights that “the FCL is a precautionary facility, complementary to own liquidity sources from, for example, international reserves “, and” their availability is intended help achieve the objectives of the Central Bank before eventual situations of severe external shocks, such as those that could accompany a significant worsening of the global effects of the crisis caused by the Covid-19 “.
“The facility is not intended to finance public spending“and neither” is subject to the conditionality of traditional IMF adjustment programs for countries facing a balance of payments crisis, “he remarks.
“The FCL does not impose prior actions to the country that hires it or ex post conditionalities in the event of disbursements. It is enough that the country meets the demanding qualification criteria. Since its creation in 2009, Mexico, Poland and Colombia have had access to this line, to which Peru would be added, a country that is also awaiting formal approval, “it is indicated.
“Access to this line It is part of the strategy of the Central Bank of Chile to strengthen its instruments against the risk that the adverse economic conditions derived from the health crisis will increase or continue.. It provides significant support not only for dealing with more severe external shocks and raising market confidence, but also for expand the set of tools available to the Bank to support the transmission of monetary policy and contribute to financial stability “, the issuing institute ends.
- Also read: What are IMF precautionary lines of credit
“It is a vote of confidence,” said Minister Briones.
The news shook the market, since It is the first time in history that the Central Bank requests this type of credit.
Minister Briones came out to land the request to the IMF, explaining that it is a precautionary credit for the Central Bank to increase its international reserves and specified that it is not a loan for the Government of Chile, so – he clarified – it is not intended to finance public expenditure.
“It is important to make explicit and be extremely clear that this line of the IMF it is not a loan to the Government of Chile and, therefore, it is not intended to finance public spending“he asserted.
Furthermore, the finance minister stressed that “this line of credit can be seen as additional insurance to the solid position that the Central Bank already has to face external shocks, particularly in a volatile global scenario.”
“In this sense, the IMF line is a precautionary facility that – it should be noted- it is only available for economies with robust macroeconomic policy frameworks, so, in short, it is a vote of confidence on the robustness of our economy“Briones stressed.
IonesMinister Briones clarifies: “IMF credit to the Central Bank is not a loan to the Government of Chile. It is not intended to finance public spending, it is additional insurance to face external shocks.” @Cooperative pic.twitter.com/U5GX9fwmX4
– Felipe Gallegos (@ FelipeGallegos7) May 13, 2020
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