IMF Executive Board Approves Two-Year US$23.93 Billion Flexible Credit Line Arrangement for Chile

IMF News, May 29, 2020

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Canonical URL: IMF Executive Board Approves Two-Year US$23.93 Billion Flexible Credit Line Arrangement for Chile

IMF Executive Board approved a two-year arrangement for Chile under the Flexible Credit Line (FCL).
Amount: SDR 17.443 billion (about US$ 23.93 billion, equivalent to 1,000 percent of quota).
Date of approval: May 29, 2020.
The authorities intend to treat the arrangement as precautionary financing.
The FCL arrangement term: two years, with a mid-term review in two-year FCL arrangements.
The FCL was established on March 24, 2009.

Chile qualifies for the FCL by virtue of:
- very strong fundamentals,
- institutional policy frameworks,
- track record of economic performance and policy implementation,
- commitment to maintain such policies in the future.
The arrangement is expected to boost confidence and, together with Chile’s comfortable level of international reserves, provide insurance against downside risks.
The Executive Board decision cites Chile’s strong policy frameworks anchored in:
- the structural fiscal balance rule,
- the credible inflation-targeting framework with the free-floating exchange rate,
- a sound financial system supported by effective regulation and supervision.

Designed for crisis prevention; provides flexibility to draw on the credit line at any time during the arrangement period (one or two years).
Disbursements are not phased nor conditioned on compliance with policy targets as in traditional IMF-supported programs.
Large, upfront access with no ongoing conditions is justified by very strong track records of qualifying countries.
The FCL provides valuable insurance against tail risks by enhancing external buffers.

The IMF highlighted substantial external risks from the ongoing Covid-19 outbreak, including:
- significant deterioration in global demand for Chilean exports,
- sharp decline or reversal of capital inflows toward emerging markets,
- abrupt tightening of global financial conditions.
The authorities intend to treat the arrangement as precautionary and temporary, and to exit the arrangement as soon as the 24-month period is completed, conditional on a reduction of risks at the time of the mid-term review.

Chile’s very strong fundamentals and policy settings have helped absorb recent shocks.
Authorities show strong commitment to maintaining very strong policies and institutional policy frameworks going forward.
The FCL arrangement will help boost market confidence amid elevated uncertainty and volatility in global financial markets resulting from Covid-19.

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

Press Release No. PR 20/227 — May 29, 2020 — IMF Communications Department