Mexico Embraces New Flexible IMF Line

Mexico is requesting a $47bn 1-year flexible credit line (FCL) from the IMF, marking the first LatAm use of the new facility. The deal – equivalent to 10 times Mexico’s fund quota – along with expectations that the government will use a $30bn Fed swap arrangement to help corporates with external amortizations, boosted Mexican markets Wednesday. “An FCL could play an important role in supporting Mexico’s economic policies and in bolstering confidence in this very difficult global environment,” says Dominique Strauss-Kahn, MD of the IMF. “Mexico is an excellent candidate to pioneer this new facility, and I therefore intend to move ahead rapidly in seeking board approval,” he adds. The IMF launched the FCL on March 24 to replace its short-term liquidity facility, calling it an insurance policy for strong performers that can be fully disbursed as needed, rather than conditional on compliance with policy targets. “This is very positive development for the currency and rates,” says Goldman Sachs. “Despite the challenging macro outlook Mexico’s fiscal and balance of payments picture is resilient enough to withstand the current external shocks and the domestic cyclical downturn,” it adds. According to Goldman, other qualified countries for the FCL are Brazil, Chile, Colombia and Peru. However, it says that Argentina, Ecuador and Venezuela would not be eligible. The private sector was last year calling for the fund to reinstate a contingent credit line (CCL) as a backstop for EM countries, and Chile had been heard interested. The fund’s CCL was floated without success earlier this decade, partly due to the fact that countries feared the perceived negative stigma that would be attached. The proposed facility also failed due to excessive conditionality. Mexico was one of the prime candidates for a CCL, but it ended up not signing one. The peso and local stock market rallied on news of the FCL Wednesday.