IMF Executive Board Approves New Two-Year US$88 Billion Flexible Credit Line Arrangement with Mexico

Mexico continues to grow at a moderate pace. Inflation remains close to the target and medium-term inflation expectations are well anchored. The authorities have taken a number of policy measures to contain the effect of external shocks and remain committed to maintaining prudent policies. Nevertheless, Mexico is susceptible to changes in investor sentiment given its high integration with the global economy.

Abstract

Mexico continues to grow at a moderate pace. Inflation remains close to the target and medium-term inflation expectations are well anchored. The authorities have taken a number of policy measures to contain the effect of external shocks and remain committed to maintaining prudent policies. Nevertheless, Mexico is susceptible to changes in investor sentiment given its high integration with the global economy.

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 62.389 billion (about US$88 billion) and canceled the previous arrangement (SDR 47.292, about US$67 billion). 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 (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.

Mexico’s first FCL arrangement was approved on April 17, 2009 (see Press Release No. 09/130), and successor arrangements were approved on March 25, 2010 (see Press Release No. 10/114), January 10, 2011 (see Press Release No. 11/4), November 30, 2012 (see Press Release No. 12/465), and November 26, 2014 (see Press Release No. 14/543).

Following the Executive Board’s discussion on Mexico, Mr. David Lipton, First Deputy Managing Director and Acting Chair, issued the following statement:

“Mexico’s macroeconomic policies and policy frameworks remain very strong. Monetary policy is guided by an inflation-targeting framework in the context of a flexible exchange rate. Fiscal policy is underpinned by the fiscal responsibility law, and the authorities are committed to a consolidation path that would put the public debt-to-GDP ratio on a downward trajectory over the medium term. The financial regulatory and supervisory framework is strong. Medium-term growth should benefit from a range of ongoing structural reforms.

“The Mexican economy has shown impressive resilience to a slowdown in world growth in recent years. Economic activity is growing at a steady pace, inflation is low and stable, and the financial system is sound. Nevertheless, Mexico’s economy remains exposed to external risks, give its close ties with the global economy. Downside risks to global growth have risen, and volatility in global financial markets has increased. The new arrangement under the Flexible Credit Line (FCL), with a higher level of access, will continue to play an important role in supporting the authorities’ macroeconomic strategy by providing insurance against greater external risks and bolstering market confidence.

“The authorities remain committed to enhancing Mexico’s resilience to external shocks further through steady implementation of the fiscal consolidation plans, continued anchoring of inflation expectations, gradual rebuilding of reserve buffers, and strong oversight of the domestic financial system. The authorities do not intend to make permanent use of the FCL. As global risks facing emerging markets recede, they intend to reduce access under the FCL in the future, with a view to phasing out Mexico’s use of the instrument.”

Mexico: Arrangement Under the Flexible Credit Line and Cancellation of Current Arrangement-Press release and Staff Report
Author: International Monetary Fund. Western Hemisphere Dept.