IMF Approves 2-Year $88b Credit Line for Mexico

The Executive Board of the International Monetary Fund Thursday approved a successor two-year arrangement for Mexico under the Flexible Credit Line in an amount equivalent to $88 billion and canceled the previous arrangement in the same amount. The Mexican authorities stated their intention to treat the arrangement as precautionary.

The FCL was established on March 24, 2009 as part of a major reform of the fund’s lending framework. The FCL is designed for crisis prevention purposes as it provides the flexibility to draw on the credit line at any time, imf.org reported.

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.

While Mexico’s economy has proven resilient, the credit line “will continue to play an important role in supporting the authorities’ macroeconomic strategy by providing insurance against external risks and bolstering market confidence,” IMF Managing Director Christine Lagarde said in a statement.

“The Mexican economy has successfully navigated a complex external environment. Economic activity has shown resilience, although near-term growth is projected to slow down amid prolonged uncertainty related to Mexico’s future trade relations, as well as tighter macroeconomic policies. Inflation has started to decelerate following a pick-up owing to temporary shocks, and the financial system is sound. Nevertheless, given Mexico’s close ties with the global economy, particularly the United States, its economy remains exposed to external risks through both trade and financial channels.

“The global risk environment has improved, but the risk of an abrupt change in Mexico’s trade relations, or of a surge in financial market volatility and a sharp pull-back of capital from emerging markets, continues to be high. The new arrangement under the Flexible Credit Line,  with an unchanged level of access, will continue to play an important role in supporting the authorities’ macroeconomic strategy by providing insurance against external risks and bolstering market confidence.

“The authorities remain committed to enhancing Mexico’s resilience to external shocks further through steadfast implementation of the ongoing fiscal consolidation plans, continued anchoring of inflation expectations, gradual rebuilding of reserve buffers, strong oversight of the domestic financial system, and steadfast implementation of structural reforms.

“The authorities do not intend to make permanent use of the FCL, and will continue to treat the arrangement as precautionary. They intend to gradually phase out Mexico’s use of the facility, conditional on a reduction in external risks affecting Mexico.”