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IMF Approves $18.5 Billion Credit Line For Chile

CHILE
  • Chile’s approved flexible line from the International Monetary Fund for $18.5 billion will boost the nation’s foreign liquidity by 40%, policy makers said in a statement.
    • Previous line for $3.3 billion no longer valid with new agreement. Talks between the central bank and IMF began in July.
  • JPMorgan said “the authorities intend to treat the FCL arrangement as precautionary, exiting as soon as the 24 months is completed, conditional on favorable developments in risks scenarios. Importantly, the FCL allows recipients to draw at any time and is designed to address both actual and potential BoP needs. In case of drawing down from the credit line, there is no ex-post conditionality. Importantly, in a disbursing scenario, the FCL resources would not be used for budget financing, in line with the institutional framework.”
    • “In our base case we assume Chile won’t be drawing from the IMF FCL line. Were Chile to tap the IMF line in the coming months, we believe that would be accompanied by a high probability of a sovereign rating downgrade, even though the FCL resources would not be used for budget financing.”
  • Goldman Sachs noted the “announcement is a welcome development that will provide the authorities with near-term breathing room and cheap insurance in a period of heightened domestic uncertainty and volatility, an ongoing FX intervention program that has partly depleted the central bank’s international reserves, a large current account deficit (8.5% of GDP), and elevated political and policy uncertainty that are likely to persist beyond the September 4 constitutional plebiscite.”
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