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Mexico seeks US$47 billion IMF credit line

MEXICO'S central bank confirmed plans yesterday to seek a US$47 billion credit line from the International Monetary Fund and activate a US$30 billion currency swap to ease lending and boost its sagging currency.

The one-year credit line, first offered by the IMF to "strong performing countries" affected by the global economic crisis last week, is meant to "underscore international confidence" in Mexico, IMF managing director Dominique Strauss-Kahn said in a statement.

Central Bank President Guillermo Ortiz said Mexico has "no intention" of tapping the funds, but will keep them on hand in case of emergency. The renewable credit line has a repayment period of 3? to 5 years and would carry 2.84 percent interest for the first three years, the bank said.

The agreement makes Mexico the first Latin American country to reach out to the IMF in years, after the Washington-based lender became a target of popular contempt across the region by conditioning billions of dollars in much-needed loans on a so-called Washington consensus of policy dictates, including privatization, deregulation and balanced budgets in the 1990s.

It also marks Mexico's first deal with the IMF since its 1995 economic crisis, when the Fund helped orchestrate its US$40 billion bailout. Mexico paid off those loans in 2000.

Goldman Sachs economist Alberto Ramos called the credit line "a very valuable self-insurance mechanism" that signals US and IMF support is available should Mexico's economy further weaken.

Mexico's economy contracted by 1 percent in the fourth quarter, and analysts predict it will slip officially into recession when new growth figures are released in May.

Markets surged on the news, first suggested by President Felipe Calderon in London on Tuesday, with Mexico's benchmark IPC index gaining 1.3 percent to 19,880 and the peso strengthening 2 percent to 13.91 against the US dollar, its strongest since March 18.

The peso has lost 21 percent of its value against the dollar since October 1, forcing the bank to sell more than US$18 billion in reserves. With yesterday's gain, it had recovered 10.3 percent since its low on March 2, making it one of the world's best performing currencies last month. Late last week, the central bank had US$79 billion in reserves on hand.

Mexico also plans to activate a US$30 billion currency swap inked last year with the US Federal Reserve, in order to sell more dollars to local banks and ease lending in coming days, Ortiz said.


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