IMF Approves $47 Billion Credit Line for Mexico

• Author: IMF Survey online

The IMF approved a credit line for Mexico of $47 billion in the first use of a new instrument designed to bolster strong performing economies against fallout from the current global economic crisis.

The Mexican authorities have stated they intend to treat the one-year arrangement as precautionary and do not intend to draw on the line.

The Executive Board approved the arrangement under the IMF's new Flexible Credit Line (FCL), which was created in the context of a major overhaul of the Fund's lending framework on March 24, 2009.

The FCL is particularly useful 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.

The Board is also scheduled to discuss an application by Poland for a precautionary credit line of $20.5 billion.

Historic day

"Today is a historic occasion," said IMF First Deputy Managing Director John Lipsky. "The IMF Executive Board has approved the first Flexible Credit Line arrangement and, at the same time, the largest financial arrangement in the Fund's history. The approval of this arrangement for Mexico represents the consolidation of a major step in the process of reforming the IMF and making its lending framework more relevant to member countries' needs.

"For over a decade, Mexico's macroeconomic performance has been very strong, exemplified by solid growth with low inflation; a steady reduction in public debt, and strengthened corporate balance sheets; a contained current account deficit; and a profitable and well capitalized banking sector. This has been underpinned by a highly credible and very strong policy framework, including a successful inflation targeting regime that has supported the commitment to the flexible exchange rate; a rules-based fiscal framework; and strong and sophisticated financial sector supervision," the First Deputy Managing Director said.

However, the current difficult global economic and financial environment poses challenges even for countries with very strong fundamentals. As the global situation has deteriorated, Mexican asset prices have fallen sharply in line with the global market sell off, and GDP growth...