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Mexico looking to IMF
> Mexico may seek short IMF program for crisis debt-economists
> Friday, January 22 1999 12:25 PM EST
> MEXICO CITY (Reuters) - Mexico is likely to seek a standby agreement with
> International Monetary Fund to refinance up to $8 billion it owes the IMF
> following its bailout after the 1994 peso crash, economists say.
> Some $5 billion in International Monetary Fund (IMF) loans to Mexico,
> from its 1994-95 financial crisis, fall due this year and another $3
> in 2000.
> Economists at major investment banks say political considerations mean the
> is likely to agree to an 18-month standby agreement, rather than a
> Extended Fund Facility (EFF) that would take it through elections in 2000.
> ``I imagine that a stand-by agreement of about two years looks probable,
> avoid any problems with the political transition,'' said JP Morgan
> Alfredo Thorne.
> Mexican President Ernesto Zedillo will end his six-year term in office in
> ``It won't go beyond the 2000 elections,'' said another economist who
> to be named. ``It is unlikely the fund would commit a new administration
> programs it hadn't agreed to in the first place.''
> A standby agreement is the standard IMF loan to governments, usually over
> or two years. Loan conditions are focused on macroeconomic targets.
> Some economists believe that Brazil's financial situation -- now in
> following last week's devaluation of its currency
> will improve sufficiently to allow Mexico to issue debt on the
> capital markets, avoiding the need for IMF help.
> However most interviewed by Reuters said some sort of IMF agreement looked
> probable. They said the Finance Ministry has assured them Mexico would
> seek to
> refinance its debts with the IMF, implying a new IMF program.
> While analysts agree any new deal Mexico signs with the fund is likely to
> under two years' duration, they are divided on the amount the Latin
> nation will seek from the multilateral lender.
> Some say Mexico may request access to extra funds as an insurance policy
> the event of any external shock, taking into account some $35 billion in
> public and private external debt maturing in 1999.
> ``They may want to have a contingent facility in place in a very
> way, and not draw on those resources unless absolutely necessary,'' one
> economist said.
> Others say that is unlikely. They see the country asking for as little as
> possible to tide it through the refinancings, possibly dipping into its
> foreign reserves, or even setting up a contingent facility with commercial
> ``We cannot rule out the possibility of an agreement with the IMF limited
> to a
> $5 billion refinancing,'' said Sergio Kurczyn, Mexico economist at Banamex
> Mexico City.
> ``I imagine they could ask for a two-year program to give them $5 billion,
> using $3 billion this year and $2 billion next,'' he said, adding Mexico
> use some of its reserves, currently just over $30 billion, to make up the
> Mexico's quota paid into IMF coffers also gives it the right to draw down
> least $5 billion, he noted, though that too would involve IMF conditions.
> The IMF has also assured Mexico of its readiness to help should the
> crisis adversely affect its economy.
> If Mexico does opt for an IMF standby agreement the fund will require
> to fulfill certain conditions.
> JP Morgan's Thorne said that could include progress on privatisations,
> in the electricity and petrochemicals sector, and a commitment to a
> surplus of a particular level in Mexico's fiscal accounts.
> Banamex's Kurczyn agreed that a speeded up pace of privatisations would
> probably be on the IMF wish list, as well as some requirements concerning
> monetary policy, including a ceiling in net internal credit and a minimum
> level of international reserves.
> ``It would be prudent to get an agreement with the IMF because of low oil
> prices, the bank sector weakness and the elections, which won't be a real
> magnet for capital next year,'' added Lacey Gallagher, chief Latin America
> analyst with Standard and Poor's in New York.
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