The International Monetary Fund said Tuesday that Peru has notified it that it will let an agreement expire. flexible credit line that had been approved two years ago and that it will not request a new one, a decision that was expected due to improvements in external risks.
The organization warned, however, that Peru needs to “urgently” implement structural reforms to reactivate the growth of its Gross Domestic Product, which is expected to be 2.5% in 2024.
Peru’s decision takes place in a context of reduced external risks and improvements in the level of international reserves, a day after the IMF praised that country for some improvements in the situation of its economy but also warned that ” “The outlook remains uncertain.”
In the short term, the risks are a possible intensification of political uncertainty, social unrest and climate events, the IMF said in a statement released on Tuesday, a day after concluding its review of the country’s situation, something that the organization does regularly every year with its member countries.
In the external context, the Fund indicated, the risks are weak growth in Peru’s trading partners, the volatility of raw material prices and the tightening of international financial conditions.
Peru has been going through a delicate political situation for some time.
The Peruvian justice investigates currently the brother and lawyer of President Dina Boluarte for allegedly being part of an influence peddling group.
Boluarte is also being investigated for alleged corruption due to the use of luxurious watches and for money laundering during the presidential campaign that brought her predecessor Pedro Castillo to power (2021-2022). The president has also been denounced before Parliament for homicide and serious injuries due to the deaths of protesters after the start of his term on December 7, 2022.
The initial Flexible Credit Line, or FCF, agreement had been approved shortly after the COVID-19 pandemic, in May 2020, to offer comfort against external shocks and a liquidity cushion in a context of high external risks. In May 2022, Peru had extended it, but reducing its access to 300% of the quota, half of what it had set two years before.
The current agreement expired on May 26.
Peru has treated the agreements as “precautionary and has maintained abundant international reserves, a low level of debt and a prudent fiscal position,” the IMF said when announcing the decision of the Peruvian authorities in a press release.
The Washington-based multilateral organization praised Peruvian authorities for their “solid economic fundamentals and institutional policy frameworks,” a sustained track record of implementing “very solid” macroeconomic policies despite political turbulence, and their commitment to maintaining them over the long term. term.
The LCF is designed to prevent and mitigate crises since countries that can access these credits can choose to use them or hold them in a precautionary manner. Their disbursements are not conditional on compliance with specific measures or goals, like credits from conventional programs.
Peru has been a member of the IMF since 1945 and has a quota equivalent to just over 1.7 billion dollars.
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