Image credits: Image by Emilio Meza from Pixabay
News Article

Unclear Path for New IMF funds

By Emilio Aristegui | Wed, 08/25/2021 - 12:58

Banxico confirmed this Monday the reception of US$12.18 billion from the International Monetary Fund (IMF) in a press release. While President Andrés Manuel López Obrador had planned to pay the country’s debt with these funds, Banxico has established that it is not possible to comply with the president’s plans.

“Today, IMF member countries received their shares of the new US$650 billion SDRs allocation, the largest in history. This is a pivotal moment in our fight against the pandemic,” said IMF Director Kristalina Georgieva this Monday. One of the main objectives of this opportunity is for countries to create exchanges between each other to obtain COVID-19 vaccines.

However, President López Obrador said that Mexico would use the money to pay the country’s debts. “This is very good news for everyone, especially for the people of Mexico. The money should be used to pay debts and not just to save,” he said on Monday. However, Deputy Governor of Banxico Gerardo Esquivel explained that the money cannot be used for that purpose unless the reserves themselves are bought by the Mexican government.  

Banxico explained in a press release that Special Drawing Rights (SDR) are “an international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries. Thus, the respective holdings of SDR allow members of that agency to reduce their dependence on other assets to constitute international reserves.”

The IMF had published a graph describing the possible outcomes for the newly distributed SDRs. “First of all, a country receives SDRs based on the proportion of its shares with the IMF. Then, a country may swap their SDRs for foreign currency reserves. Finally, the country may be able to buy COVID-19 vaccines with the foreign currency reserves.” Each country has freedom of choice when it comes to spending their shares. However, the IMF came up with this plan mainly for countries to fight the pandemic.

Banxico has the autonomy to make the final decision on how the country will locate their shares. President López Obrador has declared that the federal government: “will always, always (respect the Bank’s autonomy).”

Emilio Aristegui Emilio Aristegui Junior Journalist and Industry Analyst