The International Monetary Fund's executive board said on Monday it approved a $10.5 billion flexible credit line for Colombia as the Andean country seeks to fend off the global financial crisis. The IMF said the Colombian government would take the one-year credit arrangement as a precautionary measure that will further bolster confidence in its policies.
"The one-year arrangement ... which the authorities intend to treat as precautionary, will play an important role in bolstering confidence in the authorities' policy framework and strategy at a time of heightened global uncertainty," John Lipsky, the fund's first deputy managing director, said. Colombia's government, which requested access to the credit line last month, said the arrangement would act as a type of "insurance" in moments of crisis.
"Colombia now has an insurance for times of extreme difficulty, but you can be sure that the country has strong levels of liquidity," Finance Minister Oscar Zuluaga told reporters. Lipsky said while Colombia had maintained a strong macroeconomic performance, which had resulted in robust economic growth and single-digit inflation in the past decade, the global crisis had affected its near-term outlook. "While the flexible exchange rate absorbed the first round effects of the global crisis, weak external demand has led to a contraction of exports and a considerable slowdown in economic activity," he said.
Lipsky described the Colombian government's response to the crisis, which included monetary easing as inflation pressures eased, as prudent and appropriate. "Colombia's strong fundamentals and institutional frameworks ... and the additional insurance provided by the FCL arrangement give confidence that the authorities are well prepared to manage potential risks and pressures in the event that the global environment deteriorates further," he said.
The flexible credit line is designed to boost countries' crisis prevention efforts by providing the flexibility to draw on the credit line at any time. Disbursements are not phased or dependent on compliance with policy targets as in traditional IMF-supported programs.
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