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Colombia Approved For 2-Year $10.8 Billion USD Credit Line From IMF

Posted On May 4, 2020
By : Loren Moss
Comment: 0
Tag: colombia, commodity prices, coronavirus, covid-19, covid19, FCL, Flexible Credit Line, geoffrey okamoto, imf, international monetary fund, macroprudential policy, pandemic, sdr, venezuela

The Executive Board of the International Monetary Fund (IMF) approved on Friday a successor two-year arrangement for Colombia under the Flexible Credit Line (FCL) in an amount equivalent to SDR 7.8496 billion, or approximately $10.8 billion USD and noted the cancellation by Colombia of the previous arrangement.

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 as it provides the flexibility to draw on the credit line at any time. Disbursements are not phased nor conditioned on compliance with policy targets as in traditional IMF-supported programs. This large, upfront access with no ongoing conditions is justified, says the fund, by the strong track records of countries that qualify for the FCL, which gives confidence that their economic policies will remain strong.

“Colombia has very strong policy frameworks—anchored by a flexible exchange rate, a credible inflation targeting-regime, effective financial sector supervision and regulation, and a structural fiscal rule— that have served as a basis for the economy’s resilience prior to the Covid-19 pandemic. During this time, Colombia has made remarkable efforts to integrate a substantial number of migrants from Venezuela that boosted domestic demand but widened external vulnerabilities,” said Mr. Geoffrey Okamoto, First Deputy Managing Director and Chair in a statement.

His statement continued:

In the wake of the pandemic, Colombia’s economy is expected to contract for the first time in two decades. Consistent with their very strong track record of economic management, the authorities’ early actions to mitigate the spread of the pandemic, monetary and macroprudential policy responses, and fiscal plans—including the creation of a crisis mitigation fund to support health spending, vulnerable households and businesses—will help the economy through recession. Nevertheless, the balance of risks to the economy is sharply skewed to the downside and an exceptionally weak external environment raises Colombia’s vulnerability to still lower commodity prices, additional financial market volatility, and a further deterioration of Venezuela’s crisis.

The new arrangement under the FCL will help Colombia manage heightened external risks, protect ongoing efforts to effectively respond to the pandemic, integrate migrants, foster inclusive growth, and reduce external vulnerabilities. Despite higher external vulnerabilities, risks, and stress, the new arrangement can be maintained at the same access level because the authorities have built higher external buffers by accumulating significant additional reserves since the 2018 FCL request. The arrangement should boost market confidence, and combined with the comfortable level of international reserves, provide insurance against downside risks. The authorities intend to continue to treat this instrument as precautionary and to gradually phase out its use conditional on a reduction of external risks.

 

Above photo of IMF’s executive board courtesy International Monetary Fund

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About the Author
Loren Moss is the founder and publisher of Finance Colombia. He has over 20 years of international business experience, including over a decade of experience in securities, insurance, and commercial real estate, at the institutional and international level.
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