Press Release: IMF Managing Director Dominique Strauss-Kahn Welcomes Mexico's Request to Expand Flexible Credit Line to US$73 Billion
December 14, 2010Press Release No. 10/490
December 14, 2010
Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), made the following statement today in Mexico City:
“I welcome the Mexican authorities’ indication, underscored by President Felipe Calderón this morning, that Mexico is interested in taking advantage of the recent reforms to the Fund’s Flexible Credit Line (FCL) facility to replace its existing one-year, SDR 31.5 billion (about US$47 billion, equivalent to 1,000 percent of quota) precautionary FCL arrangement with a two-year precautionary FCL arrangement in the amount of SDR 47 billion (about US$73 billion, or 1,500 percent of quota).
“Over the past decade and a half, Mexico has put in place very strong policy frameworks, including inflation targeting, a flexible exchange rate regime and a balanced budget rule, while important fiscal reforms have been passed. In addition, public and private balance sheets have been substantially strengthened while a robust financial sector supervisory and regulatory framework has been put in place.
“While Mexico was significantly affected by the global financial crisis, the authorities responded resolutely and effectively, and a recovery is now underway. Nonetheless, important uncertainties remain in the global environment, and I share the authorities’ view that the longer duration and higher access available under the reformed FCL can play an important role in continuing to support Mexico’s policy strategy and in maintaining external confidence. I therefore intend to move ahead rapidly in seeking approval by the Fund's Executive Board of Mexico’s request.”
The FCL was established on March 24, 2009 for countries with very strong fundamentals, policies, and track records of policy implementation and is particularly useful for crisis prevention purposes. FCL arrangements are approved for countries meeting pre-set qualification criteria (see Press Release No. 09/85).
The FCL was further enhanced with reforms approved in August 30, 2010 (see Press Release No. 10/321). The duration of the line was expanded from one year to up to two years (with an interim review of continued qualification after one year) and the removal of the cap on access to resources to 1000 percent of a country’s quota. The repayment period is between three and five years. Access is determined on a case-by-case basis, and can be made available in a single up-front disbursement rather than phased. Disbursements under the FCL are not conditioned on implementation of specific policy targets or meeting quantitative criteria. There is flexibility to either draw on the credit line at the time it is approved, or treat it as precautionary.
Mexico’s first FCL was approved on April 17, 2009 (see Press Release No. 09/130), and was renewed in March 25, 2010 (see Press Release No. 10/114). Two other countries, Poland and Colombia, have also established precautionary arrangements under the FCL.
The qualification criteria are the core of the FCL and serve to highlight the IMF’s confidence in a qualifying member country’s policies, and its ability to take corrective economic policy measures, when needed. At the heart of the qualification process is an assessment that the member country has very strong economic fundamentals and institutional policy frameworks; is implementing—and has a sustained track record of implementing—very strong policies; and, remains committed to maintaining such policies in the future.
The criteria used to assess a country’s qualification for an FCL arrangement are a sustainable external position; a capital account position dominated by private flows; a track record of access to international capital markets at favorable terms; a reserve position that is relatively comfortable when the FCL is requested on a precautionary basis, and sound public finances, including a sustainable public debt position. The criteria also includes low and stable inflation, in the context of a sound monetary and exchange rate policy framework; no bank solvency problems that pose systemic threats to banking system stability; effective financial sector supervision; and, data integrity and transparency.