22 | JUL | 2019
AMLO to inherit financial shielding for USD$248 billion
When Enrique Peña Nieto took the lead, the Mexican government had a financial shielding worth USD$236.11 billion - Photo: Berenice Fregoso/EL UNIVERSAL

AMLO to inherit financial shielding for USD$248 billion

29/11/2018
19:33
Leonor Flores
Mexico City
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The International Monetary Fund has just approved a credit line for Mexico's incoming government

With the approval of a Flexible Credit Line (FCL) from the International Monetary Fund (IMF) for a total of 74 billion dollars, in addition to international reserves of 173.9 billion dollars, Andrés Manuel López Obrador’s upcoming government will inherit a financial shielding worth USD$248 billion.

The anti-crisis shielding, which works as a failsafe in the event of unforeseen circumstances regarding both domestic and international financial markets, is meant to underpin market confidence in Mexico’s solid track record a few days before the change in administration.

When Enrique Peña Nieto took the lead, the Mexican government had a financial shielding worth USD$236.11 billion, which included international reserves of 163.1 billion and a flexible credit line that went from 47 to 73 billion dollars.

The first credit line that Mexico obtained from the IMF was in 2009, during the presidency of Felipe Calderón. The country obtained said credit amidst an international financial crisis, during which Agustín Carstens served as Minister of Finance.

Mexico was the first country to express an interest in said precautionary instrument, which rose from a historical reform of the institution’s loan services, when the managing director of the IMF was Dominique Strauss-Kahn.

Three days before the presidential inauguration of López Obrador, the IMF informed that the country’s new FCL, for an amount of 74 billion dollars, had been approved.

The financial institution explained that the authorities had requested for a reduction regarding the present agreement, in line with the commitment made at the moment of its approval a year ago to reduce said amount until it was no longer necessary.

The IMF pointed out that the reason why a lower amount was requested was a decreased risk of abrupt changes in Mexico’s commercial relations. The proposal presented by the Ministry of Finance and the Bank of Mexico was made in accordance with the transition economic advisory board.

A thorough evaluation made by the international organism, led by Christine Lagarde, indicated that Mexico still met all the criteria needed to access the FCL.

The institution reminded that Mexico’s incoming administration had made a commitment to maintain a solid macroeconomic environment and respect for the current institutional framework.

Risk premiums

The report indicated that Mexico had solid external accounts in terms of exports and strong remittances, with a currency 2.7% stronger than the one it had in 2017 and strong capital inflows.

However, the institution warned that the prevalence of foreign investors puts Mexico at a larger risk of reversal of capital flows and higher country risk premiums.
 

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