The International Monetary Fund has agreed to lend $88 billion to Mexico in order to protect the nation against fallout from bouts of volatility in global financial markets.
The loan, known as flexible credit line (FCL), provides the flexibility to draw on at any time and is not tied to any policy targets.
“This flexible access is justified by the very strong track records of countries that qualify for the FCL, which gives confidence that their economic policies will remain strong,” the IMF stated in a press release. The other countries that have access to such credit lines are Poland and Colombia.
“The Mexican economy has shown impressive resilience to a slowdown in world growth in recent years,” IMF First Deputy Managing Director David Lipton said. “Economic activity is growing at a steady pace, inflation is low and stable, and the financial system is sound.”
The fund said it cancelled a previous flexible credit line worth $67 billion and that the new credit line will last for two years.
Although the Mexican government has implemented several pro-business policies in the past three years, low oil price has hit the country’s dollar reserve. The Mexican peso was down over 7 percent in May and is on track to post its biggest monthly loss in four years.
According to Reuters, the peso has been the second worst performer of the 36-most traded currencies in May behind the South African rand. According to The Wall Street Journal, Mexico has used more than $28 billion of foreign reserves to support the peso in the past year and a half, and it hasn’t tapped the IMF credit line.
Therefore, the IMF says this increased credit access will provide insurance and bolster investor confidence in Mexican economy.