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Peru Gets $11 Billion IMF Flexible Credit Line for Pandemic

Peru Gets $11 Billion IMF Flexible Credit Line for Pandemic

(Bloomberg) -- The International Monetary Fund approved an $11 billion credit line for Peru as the South American nation’s economy endures a slump that may be the deepest in more than a century.

The two-year flexible credit line is a precautionary measure that should boost market confidence and provide insurance against downside risks, the fund said in an emailed statement Thursday. Managing Director Kristalina Georgieva praised the nation’s response to the global pandemic.

“The authorities have responded decisively by putting in place stringent containment measures and a large policy package to limit the socio-economic fallout, which has been possible thanks to Peru’s ample fiscal space and monetary policy credibility,” she said.

Peru Gets $11 Billion IMF Flexible Credit Line for Pandemic

Peru becomes the third country in Latin America to receive the credit line after Mexico and Colombia. Neighboring Chile has also requested the same instrument. The credit line is intended for nations with strong fundamentals and a track record of good economic performance and policy, and Chile and Peru were seen as potential recipients ever since it was created in 2009, said IMF Western Hemisphere Director Alejandro Werner.

Their requests for the line as the pandemic roils the global economy were “very prudent and very timely,” Werner told reporters Friday during a video call.

‘World of Uncertainty’

Peru’s central bank said in a statement that it will only use the credit line if an external shock significantly depletes its international reserves and capital inflows.

The sol rose 0.2% to 3.429 per dollar at 11:50 a.m. in Lima. The currency plunged to an 18-year low in March as the pandemic triggered a rout in international markets.

Peru has implemented the biggest stimulus package in Latin America, equivalent to 17% of gross domestic product, to aid families and businesses. The coronavirus lockdown brought a halt to everything from copper mines to road-building projects, with armed soldiers enforcing nighttime curfews. The nation is suffering the most severe outbreak in Latin America after Brazil, with more than 140,000 cases.

Local analysts are forecasting an economic contraction of as much as 15% this year, which would be the worst since the 1880s. The IMF will review its current forecast of a 6.5% drop given the deteriorating global outlook, country head Leo Bonato said on the call.

Werner said the credit line will broaden the country’s response capacity in case of a bigger negative shock to trade and financial flows as the global economy faces its biggest recession since the 1930s.

“We hope it’s not used, but we’re living in a world of uncertainty,” he said.

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