Mexico Takes Loan from IMF to Guard Against Economic Downturn

| About: iShares MSCI (EWW)

According to the FT, Mexico said on Tuesday that it would take a loan from the IMF in the amount of US$40bn as a measure against the current global downturn and to support its currency. Currently, the Mexican central bank has reserves of US$30bn. The president of Mexico, Felipe Calderón said. "We have our public finances in order and we're able to take a line of credit of IMF in order to support the reserves of the central bank of US$30bn, or even US$40bn."

Further, Mexico will utilize a lending facility at the IMF of which intention is to serve emerging market economies with sound public finances and that have been hit by a financial contagion from other parts of the world. The IMF introduced last week a modified version of the lending facility for flexible credit lines without imposed conditions.

However, Mexico is the first country to make use of this lending facility, which have strict requirements including sound public finances, low inflation and a stable banking system. The latter may be out of tune in the current financial upheaval, nonetheless, a prudent measure.

The Mexican peso has been depreciating against the dollar since the beginning of 2009 and reached a year high of 15.5 USD:MXN at March 2, but was down at 14.34 yesterday afternoon, entailing a 7.4% appreciation of MXN versus the USD during March.

Further, 82.2% of Mexico's exports are destined for the USA and 75.1% of its exports are derived from manufacturing, implying that Mexico is dependent upon strong consumption from its neighbour in order to sustain the precarious market conditions. Despite most of its Latin American peers' severe reduction in industrial production, Mexico seems to be tackling the economic turbulence with a positive annualized rate in February of little less than 6%. This is considerably better than Chile, Argentina and Brasil which all operate with negative growth in its industrial production, but for how long remains to be seen.