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Mexico’s Credit Line at IMF Expanded to Record $72 Billion for Two Years


Mexico’s Credit Line at IMF Expanded to Record $72 Billion for Two Years*

By Sandrine Rastello and Jens Erik Gould

The International Monetary Fund agreed to renew and boost to $72 billion a precautionary credit line to Mexico to help insure the country against external risks.

The two-year line, the biggest committed in the fund’s history, replaces a one-year, $48 billion facility due to expire in April. Mexico, which made the request last month, took advantage of new rules for the credit-line program designed to encourage countries to turn to the fund before crises develop.

“Since mid-2009, Mexico has been experiencing a robust cyclical recovery,” First Deputing Managing Director John Lipsky said in an e-mailed statement. “However, important risks to the global economic outlook remain, particularly from pressures on global investor confidence and capital flows, which pose continuing challenges for emerging markets like Mexico.”

Mexico first sought IMF support in 2009, to bolster market confidence in its economy as the country sank into its deepest recession since the 1930s. Two other nations, Colombia and Poland, also established precautionary arrangements with the IMF under its new flexible-credit line, which is reserved for countries pursuing what the Washington-based lender considers strong economic policies.

In a report dated Dec. 23 and also released today, IMF staff said growth in Mexico is expected to slow to 3.9 percent this year from an estimated 5 percent in 2010 as a “moderating U.S. recovery” acts as “a drag on external demand.”


Monetary Policy

The report also said that an accommodative monetary policy is “appropriate” and that “authorities could also consider further easing if the recent appreciation pressures prove sustained and translate into lower inflation and inflation expectations,” referring to gains in Mexico’s peso.

The IMF staff report said that if the fund were to disburse the money set aside for Mexico, the impact on its liquidity would be “very large” and reduce the institution’s commitment capacity by about 12 percent.

“While this level of liquidity remains comfortable by historical standards, the capacity of the fund to make new commitments could deteriorate rapidly if other members with large financing needs request support,” IMF staff wrote.

In August, the fund changed rules on the flexible credit line, removing a maximum limit on its amount and extending it to two years. It also created an equivalent for countries with “moderate vulnerabilities.”

Mexican authorities plan to treat the arrangement as precautionary, the IMF said.


‘Cheap Insurance’

Mexico isn’t likely to draw on the credit line, which is seen by policy makers as “cheap insurance” compared with aggressive accumulation of foreign-exchange reserves, Goldman Sachs Group Inc.’s Alberto Ramos wrote in a note to clients last month.

Central bank Governor Agustin Carstens said Dec. 14 that the renewal of the IMF loan was a “vote of confidence” in the Mexican economy.

“Mexico has very strong economic fundamentals and a robust policy framework,” Lipsky said in the statement today.

After contracting 6.1 percent in 2009, Mexico’s gross domestic product may have expanded by more than 5 percent last year, according to the central bank.

To contact the reporter on this story: Sandrine Rastello in Washington at Jens Erik Gould in Mexico City at;


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