Mexico seeks $47 billion credit line from the IMF

02 Apr 2009

1

The global economic crisis has forced Mexico, the world's 11the largest economy by GDP, to knock at the doors of the IMF for a $47 billion standby one-year credit line to bolster its faltering economy.

The Latin American country's Foreign Exchange Commission said yesterday that it was seeking the credit line from the IMF, but would avail of it only if necessary.

The governor of the Bank of Mexico, Guillermo Ortiz, yesterday told reporters in Mexico City, "In the extreme case where there was a much greater deterioration in the global economic environment than what is expected today, with these resources we would have the security of having sufficient finance to confront any contingency."

This was reiterated by finance minister Agustin Carstens, currently in London for the G20 summit, who said the IMF credit line would "bullet proof" Mexico from the deteriorating global economic climate.

The IMF had created the 'flexible credit line' in March in wake of the global economic crisis enable sound emerging-market nations that met certain criteria, to avail of the money either immediately or at a later date, with the option of even keping it as a guarantee in case of a further worsening of the global economy.

Mexico will also tap the $30-billion swap line that the US Federal Reserve had made available in October to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining US dollar funding in fundamentally sound and well managed economies. (See: Fed opens $120-billion swap lines with Brazil, Mexico, S Korea, Singapore)

Ortiz said that the Central bank will auction the dollars to commercial banks and development banks, which in turn will make the dollar loans available to Mexican companies who are in need of finance.

Mexico, the second-biggest economy in Latin America, had first availed a $40-billion IMF loan in 1995 in the wake of the Asian economic crisis, but had repaid the loan in full in 2000.

Mexico will be the first Latin American country to go to the IMF after a long time, as the Washington-based lender is one of the most unpopular lending orgainsations in Latin America, which was made clear by Argentina, when it paid its loan to the IMF in full before the expiry of the loan as it refused its lending conditionalities on handling its economy.

IMF managing director Dominique Strauss-Kahn said in a statement that the one-year credit line is given to "strong performing countries" reeling under the global financial crisis and this loan will "underscore international confidence" in Mexico.

The one-year IMF renewable credit line has a repayment period of 3 1/4 to 5 years and carries an interest of 2.84 per cent for the first three years.

Of all the countries in Latin America, Mexico, the second-biggest economy in that region, is the most dependent on the US for its exports, investment and tourists, but all these have plummeted due to the worsening recession in the US.

Mexico has sold $2.5 billion worth of debt to boost the flagging peso, and has deployed a $4.3-billion emergency stimulus plan to drive the country's flagging economy.

Mexico's economy contracted by 1 per cent in the fourth quarter and economists predict that it will further contract 3.3 per cent this year thereby sending the economy into recession.

With the peso weak at the moment, inflation has started to rise, which is nearly double its target of 3 per cent and could create a dampener to the Bank of Mexico's monetary easing cycle.

Since the beginning of the global financial crisis, the IMF has given the maximum loans in its 60-year history by lending $55 billion with another $41.8 billion to be given to nations facing extreme financial crisis.

Business History Videos

History of hovercraft Part 3...

Today I shall talk a bit more about the military plans for ...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of hovercraft Part 2...

In this episode of our history of hovercraft, we shall exam...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Hovercraft Part 1...

If you’ve been a James Bond movie fan, you may recall seein...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Trams in India | ...

The video I am presenting to you is based on a script writt...

By Aniket Gupta | Presenter: Sheetal Gaikwad

view more