IMF Executive Board Approves New Two-Year US$73 Billion Flexible Credit Line Arrangement with Mexico

The report discusses the important role of the Flexible Credit Line (FCL) in helping Mexico to survive in the fragile global economic environment. The FCL’s contribution in maintaining an orderly financial market in Mexico is noteworthy. IMF staff reaffirms their commitment toward Mexico in taking the necessary actions to manage unforeseen risks. According to the IMF staff report, Mexico meets the qualification criteria for access to FCL resources, and staff recommends approval of a fund of SDR 47.292 billion for a period of 24 months.

Abstract

The report discusses the important role of the Flexible Credit Line (FCL) in helping Mexico to survive in the fragile global economic environment. The FCL’s contribution in maintaining an orderly financial market in Mexico is noteworthy. IMF staff reaffirms their commitment toward Mexico in taking the necessary actions to manage unforeseen risks. According to the IMF staff report, Mexico meets the qualification criteria for access to FCL resources, and staff recommends approval of a fund of SDR 47.292 billion for a period of 24 months.

IMF Executive Board Approves New Two-Year US$73 Billion Flexible Credit Line Arrangement with Mexico

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$73 billion).1 The Mexican authorities stated their intention to treat the arrangement as precautionary. Mexico’s first FCL arrangement was approved on April 17, 2009 (see Press Release No. 09/130), and was renewed on March 25, 2010 (see Press Release No. 10/114) and January 10, 2011 (see Press Release No. 11/4).

Following the Executive Board discussion of Mexico, Mr. David Lipton, First Deputy Managing Director and Acting Chairman of the Board, made the following statement:

“Mexico has in place robust policy frameworks, which include monetary policy guided by the inflation targeting regime in the context of a flexible exchange rate, fiscal policy anchored by a balanced budget rule, and financial oversight based on a sound regulatory and supervisory framework. These frameworks have underpinned Mexico’s resilience to the global crisis and strong public and private sector balance sheets. Looking ahead, the authorities remain committed to prudent macroeconomic management under these policy frameworks. They are also committed to pursuing further reforms on a variety of fronts to bolster Mexico’s long-term growth potential.

“Since the global crisis, Mexico’s economic growth has been resilient, supported by both external and domestic demand. Macroeconomic policies have underpinned the recovery and rebuilt policy buffers, while the exchange rate has played a key shock-absorbing role during bouts of global risk aversion. The recognition of Mexico as a prudently managed economy, with market-friendly and transparent regulations for foreign investment and open and liquid financial markets, has bolstered investor confidence and foreign portfolio investments.

“However, important risks to the global economic outlook remain, particularly from still unsettled international financial markets. Against this background, access under the Fund’s Flexible Credit Line (FCL) facility has helped maintain confidence. A successor FCL arrangement with the Fund, which the authorities again intend to treat as precautionary, will continue to support the authorities’ overall macroeconomic strategy, providing insurance against tail risks and bolstering market confidence,” Mr. Lipton said.

The FCL was established on March 24, 2009 and further enhanced on August 30, 2010 (see Press Release Nos. 09/85 and 10/321). The FCL is available to 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. The FCL is a renewable credit line, which could be approved for either one or two years. Two-year arrangements involve a review of eligibility after the first year. If the country draws on the credit line, the repayment period is between three and five years. There is no cap on access to Fund resources under the FCL, and access is determined on a case-by-case basis. Qualified countries have the full amount available up-front, with no ongoing conditions. 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 3,625.7 million (about US$5.6 billion).

1

Amount based on the Special Drawing Right (SDR) quote of November 30, 2012 of 1 USD = SDR 0.652

Mexico: Arrangement Under the Flexible Credit Line and Cancellation of the Current Arrangement—Staff Report; Staff Supplement; and Press Release on the Executive Board Discussion
Author: International Monetary Fund. Western Hemisphere Dept.