labels: International Monetary Fund
IMF sanctions $47 billion loan to Mexico news
20 April 2009

The International Monetary Fund (IMF) has approved a $47-billion credit line for Mexico, one of the largest economies in the region severely struck by the global financial crisis.

Mexico is the first nation to be granted the IMF credit under its newly created 'flexible credit line' (FCL) available to strongly performing economies with fewer strings attached, to tide over the worst economic crisis in over 60 years. (See: Mexico seeks $47 billion credit line from the IMF)

The Mexican authorities have stated that they consider the arrangement as a precautionary measure against further deterioration of the global markets and do not intend to draw on the credit line.

John Lipsky, acting chairman of the IMF board said, "Today is a historic occasion. The IMF executive board has approved the first FCL arrangement and, at the same time, the largest financial arrangement in the Fund's history."

Lipsky said the country's economy was fundamentally sound with good track record of growth. However, the current difficult global economic and financial environment poses challenges even for countries with very strong fundamentals. The open capital account and close global financial linkages - on top of close trade links with the United States - could expose the country to potential downside risks, he added.

Mexico's economy is largely dependent on the US where more than 80 per cent of its exports are targeted. With the US reeling under deep recession, Mexico's industrial production plummeted by more than 13 per cent in March, the lowest since 1995.

Mexico's growth rate is expected to drop to 1.4 per cent in 2008 compared to the 4.8 per cent attained in 2006 and 3.3 per cent in 2007.
The country's currency peso too slumped over 20 per cent in 2008 against the dollar.

The next country in line for the IMF credit is Poland which has requested for a $20.5 billion credit. (See: Poland seeks $20.5 billion credit from IMF)

Other IMF developments
The IMF has decided to release the second tranche of the $16.4 billion credit line to Ukraine which was deferred due to the its disagreement over the country's budget deficit.

The IMF had said the deficit was 4 per cent whereas Ukraine's prime minister Yulia Tymoshenko contended that it was close to 3 per cent and refused to cut the deficit.

The country's presidential election is due later this year and Tymoshenko being a potential contestant for the post, was reluctant to take any unpopular measures to cut the budget deficit before the election. However, the government agreed to cut back some public spending and utility tariffs to meet the IMF requirements.

Subsequently, the IMF eased up its stand and agreed to the budget deficit justifying the need for government spending due to the deepening financial crisis.

Ceyla Pazarbasioglu, the head of the IMF mission to Ukraine, said the agreement would ''pave the way for an early return to sustainable economic growth.''

The IMF had approved a $16.5 billion loan to Ukraine in last November to keep its economy afloat amidst slumping exports and fall in steel prices. (See: IMF bails out Ukraine with a $16.5 billion loan)

Ukraine had received $4.5 billion as the first part of the credit and the second portion was due in February.

In another development, Turkey and the IMF are moving closer to a regular stand by deal to aid the ailing Turkish economy, as the previous arrangement of $10 billion was successfully completed in last May.

Regarding Lebanon, the IMF said in its regular health assessment report that the country's economy has so far weathered the global economic crisis by closely observing macroeconomic policy discipline and strict oversight of the financial system.

"The deepening global recession, unsettled international credit markets, and Lebanon's exposure to regional spillovers underscore the importance of making further progress in addressing Lebanon's macroeconomic and financial vulnerabilities," the IMF said.

The economy grew above 8 per cent last year and the annual inflation rate dropped to 4 per cent in January and further down to 2.8 per cent in February, from a peak of 14 per cent in last July.

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IMF sanctions $47 billion loan to Mexico