Newsmakers : Mexico first to tap IMF credit line
Author: Antonio Guerrero
Mexico becomes the first country to tap IMF credit line;and risk management remains undervalued by money managers.
Concerned about a weakening peso and possible 2010 fiscal gap, Mexico has turned to Washington for assistance for the first time since its 1995 financial crisis. President Felipe Calderón announced plans to activate a $47 billion IMF credit line and a $30 billion currency swap from the US Federal Reserve. Other Latin American governments may follow in Mexico's footsteps to Washington.
The move makes Mexico the first country to access the IMF's new Flexible Credit Line (FCL), which unlike previous IMF loans carries no conditions to implement economic measures in exchange for assistance. The FCL was created for countries that face financing challenges but that still have strong fundamentals. Without any pre-set conditions for the loan and with the FCL limited to countries with strong economies, Calderón is unlikely to suffer the stigma of turning to the IMF.
Finance minister Agustín Carstens says Mexico, which received a $50 billion IMF rescue package in 1995, does not expect to tap the credit line, which he views as only a precautionary move. With the US buying 80% of Mexican exports and Mexican workers in the US sending home some $20 billion in remittances each year, the US recession is putting pressure on Calderón's economic agenda.
Mexican officials hope the credit line will help stabilize a weakening peso, reduce financing costs for local corporates, restore investor confidence and support the administration's stimulus efforts. The announcement alone caused a rally in currency, equity and fixed-income markets.
While Colombia was viewed as the next Latin American country likely to tap the FCL, Alvaro Uribe's administration said it did not intend to do so but would continue to monitor opportunities to finance its 2010 budget. Brazilian president Luiz Inácio Lula da Silva also denied plans to access the FCL, saying Brazil was instead committed to extending loans to the IMF.
—Antonio Guerrero
This article appeared in issue May 2009