June 14, 2016Michael Sutherland-Shaw
As the old adage goes, it’s better to be safe than sorry.
For Colombia that means doubling its billion-dollar line of credit from the International Monetary Fund (IMF) in the face of growing global economic uncertainty.
Earlier this week, the IMF approved a two-year agreement for Colombia under the Flexible Credit Line (FCL) for US $11.5 billion, cancelling its predecessor, worth US $5.4 billion. Colombia’s first FCL arrangement was approved in 2009.
The FCL was created to reform how the IMF lends money to countries that find themselves in a cash crunch. It was designed for countries with strong policy frameworks and track records in economic performance.
“Colombia has a track record of very strong policy frameworks, including an inflation-targeting regime, a flexible exchange rate, effective financial sector supervision and regulation, and a fiscal policy guided by a structural balance rule,” said Mitsuhiro Furusawa, Deputy Managing Director and Acting Chairman of the IMF Board.
According to the IMF, Colombia has no plans to use the fund, however, the funds are more of a precaution as the region faces a decline in oil prices and a struggling global economy.
“Global risks have risen with the potential to increase the severity of shocks that Colombia could suffer, despite the strength of its fundamentals and policy frameworks,” said Furusawa.
In addition, the FCL will provide added buffers and continue to play a significant role in supporting the country as it looks towards future growth and stability.
“It will also provide policy flexibility and serve as a temporary insurance that reinforces market confidence. The authorities intend to phase out its use as risks to the global outlook and commodity prices substantially recede,” Furusawa.
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