IMF Executive Board Approves New Two-Year US$72 Billion Flexible Credit Line Arrangement with MexicoPress Release No. 11/4
January 10, 2011
The Executive Board of the International Monetary Fund (IMF) today approved a successor two-year arrangement for Mexico under the Flexible Credit Line (FCL) in an amount equivalent to SDR 47.292 billion (about US$72 billion1). The Mexican authorities stated they intend to treat the arrangement as precautionary and do not intend to draw on the line.
Following the Executive Board discussion of Mexico, Mr. John Lipsky, First Deputy Managing Director and Acting Chairman of the Board, made the following statement:
“Mexico has very strong economic fundamentals and a robust policy framework. Major progress has been made over the years toward strengthening public and private sector balance sheets and reinforcing the resilience of the financial sector. Policy credibility and economic stability have been underpinned by a comprehensive rules-based policy setting, including the balanced budget rule, the inflation targeting framework, and the flexible exchange rate regime.
“These strengths have facilitated the maintenance of orderly economic conditions in Mexico, even amidst the substantial external volatility during the global crisis, supported by the authorities’ prompt and well-calibrated policy responses. The arrangement of contingent financing with the IMF through the Flexible Credit Line has helped maintain confidence.
“Since mid-2009, Mexico has been experiencing a robust cyclical recovery. The authorities have continued to undertake important initiatives—including the 2010 tax reform, the establishment of a high-level council to improve systemic risk monitoring in the financial sector, and seeking to advance structural reforms, including those of the labor market and the competition framework—as part of their long-standing drive to further bolster medium-term prospects and strengthen the policy framework.
“However, important risks to the global economic outlook remain, particularly from pressures on global investor confidence and capital flows, which pose continuing challenges for emerging markets like Mexico. At the authorities’ request, the Executive Board today approved a new arrangement under the IMF’s FCL as a successor to the previous arrangement approved in March 2010. As before, the authorities intend to treat the arrangement as precautionary. The augmented duration and size of this successor FCL—new features made possible by the recent IMF facilities reform—will allow the FCL to play an even stronger role in insuring Mexico against external risks while continuing to support the authorities’ overall macroeconomic strategy,” Mr. Lipsky said.
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 is a member of the IMF since 1945 and has a quota of SDR 3,152 million (about US$4.8 billion).To read the staff report and other documents related to the approval of Mexico’s Flexible Credit Line, please see http://www.imf.org/external/pubs/ft/scr/2011/cr1111.pdf.
1 Amount based on the Special Drawing Right (SDR) quote of January 10, 2010 of 1 USD = SDR 0.65632