MexECON Blog

Government Renews IMF Credit Line

The Mexican government has announced plans to renew its $48-billion credit line with the International Monetary Fund (IMF).  The renewal will extend the facility for one additional year.  According to a joint statement from the central bank and the finance ministry, the credit line has been instrumental in boosting the financial markets' confidence that Mexico can weather the global economic crisis. To justify the decision to renew the credit line, the statement said that, "Although there are clear signs of global economic recovery and greater market stability, the strength and speed of the recovery are still unknown."

Comment:    Extending the stand-by facility by one year gives the Mexican government a bit of insurance in case the peso starts weakening precipitously again, as it did in late 2008 and early 2009.  The availability of the IMF funds should help convince market participants that Mexico can continue to pay its modest debts and defend the currency if need be.  Coupled with Mexico's relatively strong fiscal position (see blog post "Mexico Is Not Greece," 13 March 2010), the extended facility should make it even less likely that Mexico will face the same kind of crisis of confidence that is currently wracking Greece, Spain, Italy, and the rest of the Eurozone.

Patrick Fearon, CFA
Vice President, Fund Management

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