IMF Executive Board Concludes Review of Chile´s Performance under the Flexible Credit Line Arrangement

IMF News, August 25, 2023

Source details

Canonical URL: IMF Executive Board Concludes Review of Chile´s Performance under the Flexible Credit Line Arrangement

The Executive Board of the International Monetary Fund (IMF) completed the mid-term review of Chile’s qualification under the Flexible Credit Line (FCL) arrangement on August 23, 2023.
The Executive Board reaffirmed Chile’s continued qualification to access FCL resources.
The two-year FCL arrangement for Chile was approved on August 29, 2022, in the amount of SDR 13.954 billion (800 percent of quota, around US$18.5 billion).
The Chilean authorities intend to continue to treat the arrangement as precautionary and to gradually exit the arrangement conditional on external developments and risks.

Chile continues to qualify for the FCL by virtue of its very strong economic fundamentals and institutional policy frameworks, and sustained track record of very strong macroeconomic policies.
The Chilean economy is approaching the end of its adjustment cycle towards more sustainable growth and lower inflation following macroeconomic imbalances that built up in 2021-22.
Authorities are implementing very strong policies to preserve macroeconomic stability and rebuild buffers.
Government reform ambitions include raising tax revenues, reducing inequality, reforming pensions and health care, and fostering a green economy.
Domestic risks have largely subsided with the narrowing of uncertainty around the constitutional reform process; however, risks remain from social discontent over unmet demands, security deterioration, and uncertainty related to the health care sector.

External risks remain elevated, including:
- A possible abrupt global slowdown.
- Sharply tighter global financial conditions.
- Potentially lower and more volatile commodity prices.
- A decline in capital inflows.
Chile’s very strong economic fundamentals and institutional policy frameworks—anchored in:
- the inflation-targeting framework,
- the structural fiscal balance rule,
- a flexible exchange rate, and
- effective financial regulation and supervision—

support Chile’s resilience and capacity to respond to shocks.

In view of the still elevated external risks, the authorities have expressed a desire to maintain the current level of access and are committed to gradually exit the arrangement conditional on the evolution of external risks.
The FCL is expected to continue to provide a valuable buffer against tail risks and boost market confidence by reinforcing Chile’s policy and institutional strengths.

The authorities intend to:
- Continue treating the FCL arrangement as precautionary.
- Gradually exit the arrangement conditional on external developments and risks.
The IMF highlights the importance of the authorities’ ongoing implementation of strong policies to preserve macroeconomic stability and rebuild buffers while pursuing structural reforms (tax, pensions, health care, green economy).

The FCL was established on March 24, 2009, as part of a major reform of the Fund’s lending framework.
The FCL is designed for crisis prevention purposes and provides the flexibility to draw on the credit line at any time during the period of the arrangement (one or two years), subject to a mid-term review in two-year FCL arrangements.
Disbursements under the FCL are not phased nor conditioned on compliance with policy targets as in traditional IMF-supported programs; the large, upfront access with no ongoing conditions is justified by the very strong track records of qualifying countries.
US$ amounts for the arrangement have been calculated using the exchange rate as of August 2, 2022 (SDR 0.755229/US$), consistent with the Staff Report for the FCL request.

Source: Press Release No. 23/294, International Monetary Fund, August 25, 2023.