Mexico Would Have to Buy Reserves to Pay Debt, Banxico Says
Mexico can use a multibillion dollar transfer from the International Monetary Fund to prepay debt, as the country’s president is considering, but the government would need to purchase the funds from the central bank, Banxico Governor Alejandro Diaz de Leon said.
The IMF’s transfer to the central bank of the recently-approved reserves, worth roughly $12 billion, isn’t a “donation,” Diaz de Leon said in an interview late Thursday. The comments comes after President Andres Manuel Lopez Obrador said earlier this week he was considering using Mexico’s share of the windfall to prepay the country’s debts.
“They are an asset that computes as international reserve,” Diaz de Leon said by telephone. “All foreign currency that the federal government can get from the central bank is purchased,” he said, adding that any eventual transaction needs to be done at market prices.
Lopez Obrador’s comments led to speculation over whether he’s considering merely taking the funds, or if he’s looking to purchase them from Banxico, as the central bank is known. The IMF’s member nations approved the biggest resource injection in the organization’s history, with $650 billion worth of reserve assets -- known as special drawing rights -- meant to help countries deal with mounting debt and the fallout from the Covid-19 pandemic.
While most economists agree Mexico would have to either sell bonds or use pesos from its Treasury to buy the IMF reserves, Marco Oviedo, a former chief Latin America economist at Barclays Plc, said the Fund could agree to transfer the funds directly to the Finance Ministry.
He said the foreign exchange commission, comprising top ministry and Banxico officials, may also be able to grant the government permission to use reserves to pay down debt. Oviedo said that when he was a public debt official in the Finance Ministry from 2008 to 2011, Mexico was considering that prospect at the time to help pay down domestic debt during the global economic crisis, but decided against it after market liquidity improved.
Diaz de Leon declined to comment on whether Mexico has contacted Banxico about purchasing the IMF reserves, saying the central bank can’t discuss anything it does on behalf of the federal government.
He also wouldn’t comment on whether the FX commission can grant reserves to Mexico to pay down debt. Mexico’s Finance Ministry declined to comment.
IMF spokesman Gerry Rice said that from the fund’s perspective, reserves are allocated to member countries and not to specific institutions or agencies within the country.
“A member country’s domestic legal and institutional arrangements determines which institution records the SDRs on its balance sheet and how the allocated SDRs are used,” Rice said in an emailed response to questions. “For many IMF member countries, SDRs are administered by the central bank. Some of these central banks can on-lend resources related to the SDRs to the government.”
During the interview, Diaz de Leon said that the special drawing rights, or SDRs, are computed as both an asset and a liability, or credit, on the central bank’s balance sheets.
“This is not a contribution,” he said. “The whole intention of the IMF of doing this is to increase the international reserve availability for their membership.”
Deputy central bank governor Gerardo Esquivel on Wednesday tweeted that the reserves can’t be used to pay debt.
©2021 Bloomberg L.P.