Mexico Expands IMF FCL Access

Mexico is replacing a $47bn 1-year precautionary flexible credit line (FCL) arrangement from the IMF with a $73bn 2-year line, according to the fund. The sovereign is not expected to draw on the line, which is cheap insurance that should boost the MXP, says Goldman Sachs. “If the country ends up drawing funds the current effective interest rate under the FCL ranges between 2.1%-2.7% for access between 500% and 1,000% of quota [$32.5bn-$47bn], rising to about 3.4% after three years of use (plus a 50bp flat service charge),” it adds. “Longer duration and higher access available under the reformed FCL can play an important role in continuing to support Mexico’s policy strategy and in maintaining external confidence,” says IMF MD Dominique Strauss-Kahn. He adds that Mexico has strong policy frameworks, including inflation targeting, a flexible exchange rate regime and a balanced budget rule. “While Mexico was significantly affected by the global financial crisis, the authorities responded resolutely and effectively, and a recovery is now underway,” says the official. The FCL was established on March 2009 for countries with very strong fundamentals, policies, and track records of policy implementation. In August, it was amended to allow a 2-year deal at a higher amount. The repayment period is 3-5 years. Mexico’s first FCL was approved in April 2009 and renewed in March. Poland and Colombia have also established precautionary arrangements under the FCL.