Money money money…. MON-eeee

3 April 2009

The peso, stocks and bonds surged after the government said it will seek a $47 billion credit line from the International Monetary Fund, more than President Calderón indicated on Tuesday.

The currency jumped as much as 2.4 percent as the central bank said it would also tap a $30 billion swap line from the U.S. Federal Reserve to help companies meet financing needs.

Gerardo Rodríguez, head of public credit at the Finance Secretariat, told reporters in Mexico City that the government would use the IMF credit line to bolster its reserves, not finance the budget.

…

The peso has gained 9.7 percent in the past month, stemming a 32 percent tumble over the previous six months that was sparked by a slump in exports to the United States and capital outflows. The peso rose 1.9 percent to 13.9025 per dollar at 5 p.m. New York time.

The central bank bought $100 million worth of pesos at two auctions today. It has spent $21.2 billion from its foreign reserves to shore up the peso since the global credit crisis sent it tumbling in October. Reserves have fallen 7 percent to $79 billion since the bank began intervening six months ago…

Mexico has a good credit history, when it comes to paying off loans… and restoring the peso’s value against the dollar probably is a good thing, but I am a little leery about taking IMF loans. Rogelio Ramírez de la O, notes other dangers in Wednesday’s El Universal, nicely translated by Patrick Corcoran at Gancho.

If the American economy recovers starting in the second semester of 2009, as many think it will, then the productive sector [in Mexico] can begin to bounce back before it is too late. This is the implicit gamble that the government is taking.

If, in contrast, the American crisis extends beyond 2009, around the middle of 2010 the economy would be in an unsustainable situation, but the government will have already spent all of its reserves and taken out loans to sustain the peso artificially. The crisis in the productive sector and in the population would be much deeper and the official gamble will have been incorrect.

Using today the international reserves and external loans without the support of the productive sector will reduce the space for maneuvering the country in near future. Not listing to the warnings that the private sector offers everyday about the deterioration of the productive base and the absence of public infrastructure spending is a mistake.

In other words, Mexico is even more dependent on the United States than it was before this crisis, and — although not as affected directly by the financial meltdown — has wedded itself to a U.S. recovery.

As it is, I wonder what makes the G-20 nations think that ponying up 100,000,000,000,000 dollars to the World Bank is THE solution to anything. Weren’t they the guys who fucked things up to begin with?