La Jornada – Mexico renews contingent credit line with the IMF

Mexico City. The International Monetary Fund (IMF) approved this Friday the two-year extension of a flexible credit line (LCF) for Mexico, although at the request of the national authorities it reduced it from 61 billion to 50 billion dollars, the agency reported .

It is the ninth time that the Mexican organization and government renew this line of credit, which until now has not been used, since it was hired for the first time in April 2009.

The LCF is a facility created by the IMF for those countries that have stable finances and that is granted so that they decide to use it if they face external conditions that may cause difficulties.

Unlike traditional loans, the LCF does not entail any type of public policy commitment on the part of the government that receives the facility, nor is it subject to meeting any conditions to obtain it.

“The Mexican economy is recovering from the deepest recession it has suffered in decades, driven by strong growth in the United States and rising vaccination rates. The authorities have successfully maintained external, financial and fiscal stability, despite the challenges related to the pandemic. Macroeconomic policies and institutional policy frameworks remain very strong, including a flexible exchange rate regime, a credible inflation targeting framework, a fiscal responsibility law, and a well-regulated financial sector, ”the IMF stated in giving know the extent of the LCF.

He explained that, however, the Mexican economy continues to be highly exposed to external risks, including new waves of the Covid-19 pandemic and international financial volatility, generated, for example, by the increase in inflation expectations in the economies. advanced and the corresponding faster-than-expected normalization of their monetary policies.

“These shocks could increase yields, the risk premium and capital outflows from Mexico. The new agreement within the framework of the Flexible Credit Line will continue to be an important support instrument for the authorities’ macroeconomic strategy, by offering insurance against extreme risks and propping up market confidence ”.

The IMF noted that the Mexican authorities intend to assign a precautionary character to the agreement. He explained that the decrease in the amount available is adequate, given the decrease in risks compared to last year and also takes up the strategy adopted by the authorities before the pandemic of gradually reducing the use of this service.

“The Mexican authorities have expressed their intention to request a further reduction in access in the mid-term review, depending on the evolution of external risks,” he added.

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