Thursday, April 2, 2009

Mexico and the IMF

According to Bloomberg:
"Emerging-market stocks, bonds and currencies rallied on speculation other developing nations will follow Mexico in taking advantage of the International Monetary Fund’s new loan program aimed at easing the global recession.

Polish, Czech and Brazilian stocks helped push the MSCI Emerging Markets Index up 5.6 percent to 613.07, the highest since Oct. 15. Indonesia and Venezuela paced gains in emerging- market bonds, with borrowing costs falling to the lowest since November. South Korea’s won climbed 3.4 percent, leading an advance in developing nations’ currencies.

Mexico yesterday said it will seek $47 billion from the IMF under the Washington-based lender’s new Flexible Credit Line, which allows some countries to borrow money with no conditions. Poland and the Czech Republic lead the list of possible candidates in Europe, said Gyula Toth, an analyst at UniCredit SpA in Vienna. Stocks also gained as global commodity prices rallied after leaders of the Group of 20 nations agreed on measures to fight the global recession."

In Latin America, Brazil’s Bovespa rose 4.4 percent to its highest level since Oct. Petroleo Brasileiro SA, Brazil’s state-controlled oil company, jumped 3.7 percent.
Emerging-market currencies rallied, with the Colombian peso leading gains in Latin America. The peso strengthened 2.2 percent, while Brazil’s real rose 1.9 percent.

The worst of the slump in emerging-market currencies seems to be over, with Brazil’s real unlikely to return to last year’s low. Different from the past when we observed that the fact that countries asked for an IMF loan meant an increase in sovereign risk, this time the market seems to understand that the fact that Mexico needs the IMF support does not mean that the country is implementing the wrong policies. Instead it means that the country has been hit hard by the external environment, primarly due to the severity of the global financial crisis.

Now we should wait and see which other country will follow Mexico and will ask for the IMF support.

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