Mexico and the International Monetary Fund

History

Mexico became a member of the International Monetary Fund on December 31, 1945, four days after the official establishment of the IMF. Since 1945, it has reached 8.912 billion special drawing rights (SDRs), which is 1.87% of the total amount of SDRs for the IMF. The governor is José Antonio Meade Kuribreña, and the country holds 90,591 votes.[1]

Two financial arrangements were approved for 47.292 billion SDR each year in 2012 and 2014.[2]

The latest financial agreement was approved on May 26, 2016, with 62.3889 billion SDRs approved. This financial arrangement with the IMF is set to last a total of two years.[3]

1982 Mexican Debt Crisis

In August 1982, Mexico was one of the first of various Latin American countries to default on foreign debt. As a result of this, the IMF approved a 4 billion loan (in USD) to the Mexican government. However, conditions applied that worked to reform the Mexican economy. The programs and conditions that applied to the Mexican debt crisis lasted for three years.[4]

Prior to the 1982 debt crisis, Mexico enjoyed a period of economic stability. This changed in 1976, when a change of president and an alteration of fiscal policy led to a recession. This led to the country being granted an economic stabilization program through the IMF, one of the first programs of this nature to be installed in Mexico by the IMF.[5]

1994 Mexican Peso Crisis

In 1994, a currency crisis in Mexico resulted in the devaluation of the Mexican peso, which resulted in a severe financial crisis. The currency crisis has been said to have been brought on by the new fiscal policies created by the government at the time. The Mexican Peso Crisis was extremely severe. At the same time, major organizations such as the International Monetary Fund, the World Bank, and other major banks, such as J.P. Morgan, praised the Mexican economic reforms of the time, claiming that the country's reforms were effective in bettering the economy.[6]

In the month of December, the government changed Presidents and cabinet, which resulted in a transformation of fiscal policy. Within the course of December 15 - December 21, approximately US$5.5 billion left the country, and by the end of December, the Mexican peso's devaluation was 35%. This devaluation in the matter of a couple of weeks ultimately led to interventions by the IMF and other organizations affiliated with the group. In January 1995, the IMF entered the scene and laid out a 7.8 billion bailout package that would aid Mexico in overcoming the crisis. However, the United States stepped in and increased this rescue package to US$50 billion with the aid of private banks, the IMF, and the Bank for International Settlements.[7]

2009 increased credit line

As of 2009, the Mexican government requested an increase in credit line from the IMF. This was approved[8] by the IMF in the same year, increasing Mexico's credit line to US$47 billion. A notable feature about this increase is that it is one of the new arrangements under the new IMF lending reforms or the Flexible Credit Line.[9] This increase was meant to ensure that Mexico would be able to prosper despite global financial crises, and the program would last solely a year. However, the program was renewed less than a year later on March 25, 2010. The flexible credit line (FCL) allowed Mexico to remain a reliable player internationally. [10] However, the FCL did not prevent Mexico from having a record low GDP when compared to other Latin American countries. The 2008 financial crisis in the United States had a big impact on the Mexican economy because relations between both countries were close and friendly. Their friendly economic relationship was namely due to NAFTA, which is a free trade agreement in North America between the United States, Mexico, and Canada. [11] The U.S./Mexico relationship was one of Mexico's greatest assets and allowed for Mexico to become one of the most important Latin American countries due to its increase in manufacturing factories and economic reforms.[12] The FCL allowed Mexico to handle the pressures from other Latin American countries because with the financial and ideological support from the U.S., Mexico could be a formidable opponent. [13] U.S interests lie with Mexico because Mexico is a good indicator of the economies from other nearby countries in Latin America. In 2009, Mexico's increased credit line was sufficient to remain relatively stable.

Current day Mexico

Mexico's credit line has fluctuated since the 2009 agreement, rising to $88 billion in 2016 and decreasing to $74 billion in 2019. The credit line decreased because Donald Trump threatened to disband the North American Trade Agreement.[14] As of November 22, 2019, the IMF and Mexico have reached an agreement of $61 billion dollars for a provisional two year period. This FCL is at the disposal of the Mexican government as an insurance policy, should anything happen within the economy.[15] The Mexican economy remains stable, with the peso at the same rate of inflation as years prior. Consumption has risen, which is projected to boost the economy by the end of 2019, despite the decrease in foreign investment. Since the 2009 agreement, Mexico's economy has become better able to handle economic surprises that could have been more detrimental.[16] Mexico faces pressure from the IMF to reform its economic policy and make changes to the proposed budget by President Obrador. The IMF is skeptical of President Obrador's projections regarding tax reforms and issues with Pemex.[17]

References
  1. "IMF Members' Quotas and Voting Power, and IMF Board of Governors". www.imf.org. Retrieved 2017-06-06.
  2. "Financial Position in the Fund for Mexico as of May 31, 2017". www.imf.org. Retrieved 2017-06-13.
  3. "Financial Position in the Fund for Mexico as of May 31, 2017". www.imf.org. Retrieved 2017-06-13.
  4. Felix, David (1990). "Latin America's Debt Crisis". World Policy Journal. 7 (4): 733–771. JSTOR 40209191.
  5. "The Mexican 1982 debt crisis". Rabobank. Retrieved 2017-06-06.
  6. Edwards, Sebastian (1998-01-01). "The Mexican Peso Crisis: How Much Did We Know? When Did We Know It?" (PDF). World Economy. 21 (1): 1–30. doi:10.1111/1467-9701.00117. ISSN 1467-9701.
  7. "Redirecting..." heinonline.org. Retrieved 2017-06-06.
  8. https://www.imf.org/external/pubs/ft/scr/2009/cr09126.pdf
  9. "IMF Survey: IMF Approves $47 Billion Credit Line for Mexico". www.imf.org. Retrieved 2017-06-06.
  10. Sidaoui, Jose. "The global financial crisis and policy response in Mexico" (PDF). Retrieved 3 December 2019.
  11. "U.S.-Mexico Economic Relations: Trends, Issues, and Implications" (PDF). FAS. Retrieved 11 December 2019.
  12. Velut, Jean-Baptiste. "NAFTA's Developmental Impact on Mexico: Assessment and prospects". IDEAS. Retrieved 11 December 2019.
  13. Villarreal, M. Angeles. "The Mexican Economy After the Global Financial Crisis" (PDF). Retrieved 3 December 2019.
  14. Martin, Eric. "IMF Says Mexico Credit Line May Be Cut From Current $74 Billion". Bloomberg. Retrieved 3 December 2019.
  15. "MF Executive Board Approves New Two-Year US$61 Billion Flexible Credit Line Arrangement with Mexico". IMF. Retrieved 3 December 2019.
  16. "IMF Executive Board Concludes 2019 Article IV Consultation with Mexico". IMF. Retrieved 3 December 2019.
  17. Webber, Jude. "IMF says Mexico's policies are hurting growth". Financial Times. Retrieved 11 December 2019.
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