Press Release No. 10/114

Press Release No. 10/114
March 25, 2010

The Executive Board of the International Monetary Fund (IMF) today approved a successor one-year arrangement for Mexico under the Flexible Credit Line (FCL) in an amount equivalent to SDR 31.528 billion (about US$48 billion). The Mexican authorities stated they intend to treat the arrangement as precautionary and do not intend to draw on the line.

The FCL was established on March 24, 2009 as part of a major reform of the Fund’s lending framework (see Press Release No. 09/85). The FCL is designed for crisis prevention purposes as it provides the flexibility to draw on the credit line at any time. Disbursements are not phased nor conditioned on compliance with policy targets as in traditional IMF-supported programs. This flexible access is justified by the very strong track records of countries that qualify for the FCL, which gives confidence that their economic policies will remain strong.

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 a sustained record of sound economic policies, and has very strong economic fundamentals and frameworks. Public and private debt levels were reduced and balance sheets strengthened in the years before the global crisis. Well implemented rules-based policy mechanisms, including the balanced budget fiscal rule and inflation targeting framework and flexible exchange rate regime, have anchored stability.

This strong policy framework has helped preserve stability during the crisis, and––for the first time in many decades––allowed the authorities to deliver a sizable countercyclical fiscal and monetary policy response. Adroit steps have been taken in various financial market segments to maintain orderly conditions. The authorities have continued to demonstrate their commitment and ability to reform in challenging times, including through the passage of important revenue measures in the 2010 budget that will strengthen the medium-term fiscal outlook. Swift action to secure contingent credit lines during the crisis—from the U.S. Federal Reserve and the International Monetary Fund—also helped maintain external confidence.

On the back of these strong policy measures and improving global economic conditions, growth has resumed since mid-2009, asset prices have recovered from troughs seen at the height of the crisis, and domestic financial stability has been maintained. Looking forward, policies will continue to be underpinned by the rules-based macroeconomic framework, and the authorities intend to continue to react as needed to any future shocks that may arise.

Nonetheless, sizeable downside risks still confront the global economy. It is against this background that, at the authorities’ request, the Executive Board today approved a one-year arrangement under the IMF’s FCL, which the authorities intend to treat as precautionary. This successor FCL arrangement will continue to play an important role in supporting the authorities’ overall macroeconomic strategy and in bolstering confidence until external conditions improve, complementing financing from other multilaterals.

Mexico’s very strong policy frameworks and economic fundamentals, together with the additional insurance provided by the successor arrangement under the FCL, put Mexico in a very strong position to deal with other potential risks that could arise in the period ahead as the global economy continues to gradually recover from the crisis.”

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/2010/cr1081.pdf