IMF Executive Board Completes Review of Mexico’s Performance Under the Flexible Credit Line

Press Release No. 09/362
October 16, 2009

The Executive Board of the International Monetary Fund (IMF) today completed its six-month review of Mexico’s qualification for the arrangement under the Flexible Credit Line (FCL) and reaffirmed Mexico’s continued qualification to access FCL resources. The Mexican authorities have indicated that they intend to continue treating the arrangement as precautionary and do not intend to draw on the line.

The one year arrangement for Mexico for SDR 31.5 billion (about US$47 billion), approved in April 17, 2009 (see Press Release No. 09/130) was the first commitment under the IMF’s FCL, which was created in the context of a major overhaul of the Fund’s lending framework on March 24, 2009 (see Press Release No. 09/85 and Public Information Notice 09/40).

Following the Executive Board discussion of Mexico, Mr. John Lipsky, First Deputy Managing Director and Acting Chairman of the Board, made the following statement:

“Six months ago, with the global financial crisis near its peak, the IMF Executive Board approved for Mexico the first Flexible Credit Line (FCL) arrangement in the history of the Fund. The goal of the FCL is to provide insurance against tail risks beyond the control of country authorities. In Mexico, the authorities’ responsive policy actions, additional financing from the international community, coupled with the FCL have in the last months supported a reduction in perceptions of tail risks and contributed to stabilization in financial market conditions. Today, the IMF Executive Board has completed a review that reaffirmed that Mexico continues to meet the qualification criteria for access to FCL resources.

“Despite its strong policy frameworks, the current global economic and financial environment has hit Mexico harder than expected. The economy is in the deepest recession since the 1994-95 crisis, reflecting especially close links to the U.S. economy. However, recent indicators show some signs of recovery and overall growth is expected to pick up in the second semester of this year. Meanwhile, corporate external financing conditions have eased and the balance of payments situation remains manageable.

“However, Mexico’s very strong policy framework, which underpins its qualification for the FCL, has helped cushion the impact of the global crisis. The flexible exchange rate has adjusted, the inflation targeting framework has provided an anchor for expectations, and the fiscal rule and strengthened public sector balance sheets have averted disruptive moves in risk premia. The well capitalized banking system and strong supervisory framework provide assurances that challenges to the financial sector from the sharp growth slowdown will be met.

“In a signal of their commitment to pursuing very strong policies, the authorities have proposed an ambitious fiscal reform to the Congress that seeks to strike a balance between the need to begin the process of fiscal consolidation, while smoothing as much as possible the withdrawal of fiscal support to the economy. The proposed measures, in conjunction with the existing fiscal framework, continue to ensure medium term fiscal sustainability. Monetary policy continues to be guided by the inflation targeting framework and expectations remain well anchored.

“Against this backdrop of very strong policy frameworks and actions, the Executive Board today reaffirmed that Mexico continues to meet the qualification criteria for the FCL. Accordingly, resources under the FCL—which the authorities have indicated that they intend to continue to treat as precautionary—will remain available through April next year,” Mr. Lipsky said.



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