Peru leaves the flexible credit line agreement with the IMF

Peru leaves the flexible credit line agreement with the IMF

May 21, 2024

Washington DC: Peruvian authorities have notified the International Monetary Fund (IMF) of their intention to let the current Flexible Credit Line (FCL) agreement, approved by the IMF Executive Board on May 27, 2022, expire on May 26, 2024. and not request a successor FCL agreement. This decision was expected given the authorities’ previous intention to exit the agreement conditional on the evolution of external risks.

Peru’s initial 600 percent quota FCL arrangement was approved by the IMF Executive Board in May 2020, shortly after the start of the global COVID-19 pandemic, with the aim of providing strong signals, additional reserves and insurance against external shocks in a context of greater risks. Peru reduced its access to 300 percent of the quota in a successor agreement approved in May 2022 amid improved international reserves and lower external financing needs, in line with the authorities’ strategy to gradually exit the instrument, once external conditions permit.(1) At the same time, Peru has treated both agreements under the FCL as precautionary and has continued to maintain its strong foreign exchange reserves, low public debt, and prudent fiscal position. In May 2023, at the time of the mid-term review of the current FCL, the Peruvian authorities reiterated their intention to exit the FCL conditional on the evolution of external risks.

At the conclusion of the 2024 Article IV Consultation on May 20, 2024,(2) and in the context of reduced external risks and ample international reserves, the IMF Executive Board commended the authorities for their economic fundamentals and institutional policy frameworks very solid policies, a sustained track record of implementing very sound macroeconomic policies despite political turmoil, and a commitment to maintaining those policies in the future. He also noted that maintaining very strong institutions and policies would further strengthen and reinforce Peru’s resilience against external risks.

The IMF’s FCL instrument was established on March 24, 2009 and was further enhanced on August 30, 2010 and, more recently, on October 6, 2023.(3) The FCL is designed to prevent and mitigate crises, as which gives qualified members the flexibility to draw on the line of credit or treat it as a precautionary measure. Disbursements are not staggered or conditional on the fulfillment of political objectives as in traditional programs supported by the IMF. The FCL is available to qualified countries with very strong fundamentals, institutional policy frameworks and a track record of policy implementation. The FCL is a revolving line of credit, which could be approved for one or two years. There is no limit to access to Fund resources under the FCL and access is determined on a case-by-case basis.

Peru has been a member of the IMF since 1945 and has a quota of SDR 1,334.5 million (about 1,761 million dollars).

(1) The first LCF for Peru was approved on May 28, 2020 (see Press Release No. 20/224). The FCL successor agreement was approved on May 27, 2022 (Press Release No. 22/173).

(2) See Press Release No. 24/172

(3) See Press Release No. 09/85, Press Release No. 10/321 and Press Release No. 23/340

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