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Peru abandoned flexible credit program with the International Monetary Fund

Peru abandoned flexible credit program with the International Monetary Fund

With information from AFP and EFE

The International Monetary Fund (IMF) announced that Peru abandoned its flexible credit program, a precautionary support line approved in May 2020, after the outbreak of the coronavirus pandemic. This is how our country becomes the second, behind Poland, to make this decision, making its departure effective this Sunday, May 26.

The flexible credit available to Peru was admitted at the beginning of the health emergency. However, our country did not need to resort to it. The total then left about US$10 billion available.

And the countries have an open line of credit – previously approved – of which they can use part or the total available in case of need due to exceptional situations.

In that sense, These types of mechanisms represent economic support offered to emerging countries with solid economic fundamentalswhich allows them to face unexpected crises, such as climate or health disasters, for example.

Nevertheless, The financial organization highlighted the rebound of the Peruvian economy despite the social tensions at the beginning of 2023 and the effects of climate change in the country. This is why it is expected that, after the particularly intense drought caused by the impact of El Niño, economic growth will recover to reach 2.5%.

Likewise, the IMF recognized “the very solid institutional framework and economic fundamentals” of the Andean country, as well as “the consistency in the adoption of essential macroeconomic reforms despite social tensions.” Therefore, inflation in Peru is expected to go from 6.3% in 2023 to 2.3% this year.

Background

Shortly after the start of the global coronavirus pandemic, Peru signed an initial LCF agreement for 600% of its quotawith the objective of “providing a strong signal, an extra liquidity cushion and insurance against external shocks in a context of high risks,” recalls the Fund.

In May 2022, the Peruvian Government reduced its access to 300% of the quota, following the improvement in international reserves and lower needs for external financing. Renewing a two-year flexible credit line for Peru for US$5.4 billion.

Source: Larepublica

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