Central Bank asks IMF line of credit for US $ 23.8 billion to strengthen liquidity

The Central Bank reported on Tuesday that it requested from the International Monetary Fund (IMF) a two-year Flexible Line of Credit (FCL) for an amount of US $ 23.8 billion.

According to the issuing entity, this line will increase the availability of immediate access international liquidity for the Central by more than 60%.

“Based on solid economic fundamentals, institutional policy frameworks and Chile’s record, the IMF’s managing director, Kristalina Georgieva, intends to recommend approval of the Flexible Credit Line agreement for Chile,” the statement said. of the international organization.

“The Chilean authorities intend to treat the line of credit as precautionary,” they add from the IMF, after an informal meeting of its executive board to address the request of the Central Bank. “This line of credit helps safeguard against external shocks by providing countries with strong policy frameworks and tracking economic performance records with broad and up-front access to IMF resources without ex post conditions,” they detailed. , informing that the decision will be made in the coming weeks. From the Fund they stressed to PULSO that this line is not an “emergency instrument”.

The Chilean authority added that this line is part of the BC’s strategy to strengthen its instruments against the risk that the negative economic conditions derived from the coronavirus crisis will increase or continue.

“This provides significant support, not only to face more severe external shocks and raise confidence in the markets, but also to expand the set of tools available to the Bank to support the transmission of monetary policy and contribute to financial stability “Said the BC.

The Finance Minister, Ignacio Briones, indicated that “it is important to make it explicit that this line is not a loan to the Chilean government and, therefore, it is not intended to finance public spending. It is also important to highlight that this line can be seen as additional insurance to the solid position that the BC already has to face external shocks ”.

With Chile, there are already three countries in the region that have requested this line. The IMF reported that Colombia had already been approved on May 1 by US $ 10.8 billion, while Peru began the process on the 8th of this month for a FCL of US $ 11 billion. Likewise, Mexico has a line for US $ 74 billion, ratified in November 2018.

This line is not subject to the conditionality of traditional IMF adjustment programs for countries facing a balance of payments crisis.

The former president of the BC, José De Gregorio, explains that “this line was originally designed after the Asian crisis, and then modified to reach the current FCL. Only three countries before the crisis obtained it (Colombia, Mexico and Poland) ”. However, he adds, that “the low interest in this facility was the stigma that the countries that obtained it could suffer. Macroeconomically sound economies could signal weakness when asking for it. As some analysts commented, it was a line designed for countries with little interest and demanded by countries that were not eligible. However, the current crisis is extreme and the risks high enough that stigma considerations are irrelevant in the current circumstances compared to the benefit of having a contingent line of credit at very low cost to complement international reserves in case of liquidity problems. in foreign currency. Consequently, the decision of the BC to request this line is fully justified, and the approval by the IMF board in recognition of the macroeconomic strength of our country. ”