- The IMF completed the mid-term review of Chile's qualification under the Flexible Credit Line (FCL) arrangement. The arrangement was approved on August 29, 2022, for an amount of about US$18.5 billion (equivalent to 800 percent of quota).
- 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.
- 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 authorities intend to continue to treat the arrangement as precautionary.
Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed on August 23, 2023, the mid-term review of Chile's qualification under the Flexible Credit Line (FCL) arrangement.[1] The Executive Board reaffirmed Chile's continued qualification to access FCL resources.
The current two-year FCL arrangement for Chile was approved by the IMF's Executive Board on August 29, 2022 (see Press Release No. 22/294), in the amount of SDR 13.954 billion (800 percent of quota, around US$18.5 billion[2]). The Chilean authorities reiterated their intention to continue to treat the arrangement as precautionary. The authorities intend to gradually exit the arrangement conditional on external developments and risks.
Following the Executive Board's discussion on Chile, Ms. Antoinette Sayeh, Deputy Managing Director, made the following statement:
"Following the macroeconomic imbalances that built up in 2021-22, the Chilean economy is approaching the end of its adjustment cycle towards more sustainable growth and lower inflation in a challenging external environment. The authorities are implementing very strong policies to preserve macroeconomic stability and rebuild buffers. The government has reform ambitions to raise tax revenues, reduce inequality, reform pensions and health care, as well as foster a green economy.
"The Chilean economy remains exposed to elevated external risks tied to a possible abrupt global slowdown and sharply tighter global financial conditions, which could lead to lower and more volatile commodity prices and a decline in capital inflows. Domestic risks have largely subsided with the narrowing of uncertainty around the constitutional reform process, while the risk of social discontent over unmet demands and security deterioration and uncertainty related to the health care sector remain. However, 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 this context, the Flexible Credit Line (FCL) will continue to provide a valuable buffer against tail risks and boost market confidence by reinforcing Chile's policy and institutional strengths. The authorities remain committed to treat the FCL arrangement as precautionary and gradually exit conditional on external risk developments."
[1] The FCL was established on March 24, 2009 as part of a major reform of the Fund's lending framework (see Press Release No. 09/85). The FCL is designed for crisis prevention purposes as it provides the flexibility to draw on the credit line at any time during the period of the arrangement (one or two years), and subject to a mid-term review in two-year FCL arrangements. 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 by the very strong track records of countries that qualify for the FCL, which gives confidence that their economic policies will remain strong.
[2] US$ amounts 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.
