Mexico: 2013 Review Under the Flexible Credit Line Arrangement

EXECUTIVE SUMMARY? Background and Outlook. Mexico has been resilient to global uncertainty, in largepart due to confidence in the strong policy framework and sound policymanagement, which are underpinned by a broad consensus about macroeconomicstability and by the signaling and insurance benefits of the FCL arrangement.Significant progress has been made in advancing far-reaching structural reforms,signaling Mexico's commitment to address deep-rooted impediments to growth. Theeconomy slowed down in early 2013, but is expected to recover starting in thesecond half of the year. Mexico's financial markets have functioned reasonably wellthrough the recent global volatility, although with some currency depreciation and arise in long-term government bond yields. Given Mexico's open capital account andlarge balance sheet exposures to portfolio investment, risks are associated withunsettled external conditions, especially the risk of a possible disorderly exit fromUnconventional Monetary Policy (UMP) in the U.S.? FCL. The fourth arrangement with Mexico under the FCL for 1,304 percent of quota(in an amount equivalent to SDR 47.292 billion) was approved on November 30,2012. The authorities intend to continue treating the arrangement as precautionary.? Qualifications. The staff assess that Mexico continues to meet the qualificationcriteria for access to FCL resources specified under the Executive Board decision onFCL arrangements (Decision No. 14283-(09/29), adopted on March 24, 2009, asamended) and therefore recommend that the Board completes the review under theFCL arrangement which would allow Mexico to make purchases before the expirationof the arrangement on November 29, 2014.