MercoPress. South Atlantic News Agency

Mexico sets up 150 billion US dollars barrier to end market volatility

Mexico asked the International Monetary Fund for a 47 billion US dollars credit line which is to be added to the 30 billion swap line with the Federal Reserve to help shore up the economy and end market volatility.

Mexico’s 79 billion US dollars stock of foreign reserves, the IMF loan and the Fed swap line give the country ample resources to weather the global crisis, said Guillermo Ortiz, central bank Governor.

The funds “will help mitigate the volatility in the exchange rate” said Slavador Orozco head of fixed-income strategy at Banco Santander SA in Mexico City. “This will take pressure off” the peso, he said.

Mexico’s currency rebounded on the news after falling 23% over the previous six months as the recession in the US economy curbed demand for exports and slowed remittances from migrant workers. US buy more than 80% of Mexico’s exports and remittances are in the range of 20 billion US dollars annually.

The IMF credit line would be Mexico’s first with the Washington-based lender since the “Tequila Crisis” that followed the 1994 peso devaluation. The loan is “preventative” and no decision has been made to draw on it, the government cautioned. Dollars from the Fed swap line will be made available to Mexican companies by auctioning them off to banks, central bank Governor Ortiz said.

Mexico has spent 21.3 billion from its foreign reserves to shore up the peso since the global financial crisis sent it tumbling in October. Mexico’s economy will contract 2.8% percent this year, the Finance Ministry said in a report to Congress, the first economic contraction since 2001.