The Mexican Government agreed this Thursday on a new line of credit with the International Monetary Fund (IMF) for 35 billion dollars, a reduction of nearly 15 billion since the previous line was renewed in 2021, as reported by the multilateral in a statement. The Flexible Credit Line is an instrument available to some countries in the world that allows them to strengthen their reserves and address unexpected shocks. The line will be valid for two years.
This is the fourth consecutive time that Mexico decides to reduce its exposure to this type of financing, according to information from the Fund. In 2018, Latin America’s second economy decided to cut the line from $88 billion to $74 billion.
The line of credit, which is granted based on special drawing rights that guarantee that resources are transferred quickly and flexibly, was immersed in controversy in 2021, when President Andrés Manuel López Obrador issued a request to receive the money and pay part of the debt of the troubled state oil company, Petróleos Mexicanos (Pemex). At the time, a deputy governor of the Bank of Mexico, Gerardo Esquivel, assured that he would be in violation of the law, since the credit with the Fund is to strengthen the bank’s reserves. Pemex is the most indebted oil company in the world.
“Mexico remains exposed to high external tail risks, although lower than in previous years. These include new bouts of volatility in financial markets, rising risk premiums and capital outflows from emerging markets, as well as weakening US growth and a global economic slowdown,” said Gita Gopinath, first deputy managing director of the IMF. “Upcoming elections in Mexico and the United States could further exacerbate uncertainty. “The new agreement under the LCF will continue to play an important role in supporting the authorities’ macroeconomic strategy and offering insurance against extreme risks, as well as underpinning market confidence,” she added.
The Fund considered that the monetary policy of the Mexican central bank is prudent, since it has focused on containing inflationary pressures. Regarding the fiscal policy of the Federal Government, it has kept the public debt under control, the multilateral described. “These efforts must continue, accompanied by supply-side reforms that resolve existing bottlenecks, with emphasis on the fight against climate change, strengthening the framework for preventing money laundering and terrorist financing, and the fight against corruption and the improvement of the labor market,” the IMF recommended.
“The Mexican economy is in the midst of broad-based expansion, with strong private sector consumption and investment,” Gopinath said in a statement. “Mexico’s macroeconomic policies and economic policy institutional frameworks remain very solid, with a flexible exchange rate regime, a credible inflation targeting framework, the Federal Budget and Fiscal Responsibility Law, and a well-regulated financial sector. “Mexico continues to meet the eligibility criteria for the Flexible Credit Line (LCF),” he added.
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