IMF Survey: IMF Approves $47 Billion Credit Line for Mexico

IMF News, April 17, 2009

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The IMF approved a credit line for Mexico of $47 billion in the first use of a new instrument designed to bolster strong performing economies against fallout from the current global economic crisis.
Publication: IMF Survey online, April 17, 2009.
The Mexican authorities have stated they intend to treat the one-year arrangement as precautionary and do not intend to draw on the line.

The arrangement was approved under the IMF’s new Flexible Credit Line (FCL), created in the context of a major overhaul of the Fund’s lending framework on March 24, 2009.
Key characteristics:
- Particularly useful for crisis prevention purposes.
- 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.
- Flexible access is justified by the very strong track records of countries that qualify for the FCL.

John Lipsky, IMF First Deputy Managing Director: “Today is a historic occasion. The IMF Executive Board has approved the first Flexible Credit Line arrangement and, at the same time, the largest financial arrangement in the Fund’s history. The approval of this arrangement for Mexico represents the consolidation of a major step in the process of reforming the IMF and making its lending framework more relevant to member countries’ needs.”
The Executive Board considered Mexico an excellent candidate to pioneer this facility.
The FCL is intended to play an important role in supporting Mexico’s overall macroeconomic strategy and in bolstering confidence until external conditions improve.

Positive fundamentals highlighted:
- “For over a decade, Mexico’s macroeconomic performance has been very strong, exemplified by solid growth with low inflation; a steady reduction in public debt, and strengthened corporate balance sheets; a contained current account deficit; and a profitable and well capitalized banking sector.”
- Underpinned by: a highly credible and very strong policy framework, including a successful inflation targeting regime supporting the commitment to the flexible exchange rate; a rules-based fiscal framework; and strong and sophisticated financial sector supervision.
External and cyclical vulnerabilities noted:
- “However, the current difficult global economic and financial environment poses challenges even for countries with very strong fundamentals.”
- As the global situation deteriorated, Mexican asset prices fell sharply and GDP growth slowed sharply.
- The open capital account, close global financial linkages, and close trade links with the United States could expose the country to potential downside risks.

Measures taken by authorities:
- Steps to maintain orderly functioning of domestic markets.
- Steps to facilitate the refinancing of corporate external debt.
- Fiscal stimulus to support demand, while simultaneously announcing measures to ensure medium term fiscal sustainability.
- Monetary policy easing.
Forward-looking policy stance:
- “Policies will continue to be underpinned by the rules based macroeconomic framework, accompanied by continued close monitoring of financial and corporate sector developments, and the authorities intend to continue to react as needed to any future shocks that may arise,” said Lipsky.
Complementary support:
- The FCL complements the previously agreed swap line with the U.S. Federal Reserve, as well as financing from other multilaterals.

The Board was also scheduled to discuss an application by Poland for a precautionary credit line of $20.5 billion.

Source: IMF Survey online, April 17, 2009.