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Title: Peso Tumble, Swine Flu May Prompt Mexico to Tap IMF
Source:
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URL Source: http://www.bloomberg.com/apps/news? ... 87&sid=a1frueBejyV4&refer=home
Published: Apr 29, 2009
Author: Lester Pimentel and Valerie Rota
Post Date: 2009-04-29 13:42:47 by Jethro Tull
Keywords: None
Views: 122
Comments: 8
Peso Tumble, Swine Flu May Prompt Mexico to Tap IMF (Update2) By Lester Pimentel and Valerie Rota April 28 (Bloomberg) -- Mexico is more likely to draw on a $47 billion credit line from the International Monetary Fund after the deadly swine flu outbreak sparked the peso’s biggest tumble in six months, according to Barclays Capital Inc. The spreading disease “raises the odds of tapping the facility,” Eduardo Levy-Yeyati, head of emerging-market strategy at Barclays in New York and a former economist at the IMF, said in an interview. “The flu increases growth risks and currency pressures.” The peso sank 5.1 percent yesterday, the biggest decline among all currencies tracked by Bloomberg, and was little changed in London trading today at 14.0363 as of 8:50 a.m. Flu- related deaths climbed to 149 in Mexico, though the number directly connected to swine flue hasn’t been confirmed. The benchmark stock index lost 3.3 percent and bonds dropped. The sell-off began just as investor confidence in Mexico was starting to recover because of the IMF’s April 17 decision to extend the country a credit line. The currency, which had plunged 32 percent in the six months through March 9 as Latin America’s second-largest economy slipped into a recession and drug violence increased, surged 12 percent in the six weeks before the government first reported the swine flu cases on April 23. ‘Preventive’ Line President Felipe Calderon requested the IMF credit line to shore up the country’s foreign reserves amid a slump in tourism, migrant remittances and exports to the U.S. Central bank Governor Guillermo Ortiz said on April 1 that the IMF line was a “preventive” loan facility that the government hadn’t planned on drawing down. Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York, said Mexico shouldn’t hesitate to tap the line “if they feel they need it.” “It’s there to be used,” Thin said. “This is something they couldn’t really control, so I don’t think the markets would take it too badly.” Rodrigo Brand, the Finance Ministry’s spokesman, didn’t return a telephone call seeking comment on use of the IMF line. The peso’s drop yesterday extended its decline to 6.2 percent in the past two trading days. The central bank bought $400 million worth of pesos yesterday to stem the currency’s slide. It has spent $23.1 billion of its foreign reserves since October, pushing them down 7.4 percent, to defend the peso. Stocks Fall The Bolsa stock index led declines in Latin America as Mexico City estimated the outbreak is costing companies in the capital at least $85 million a day in lost revenue, deepening a recession. The extra yield investors demand to own Mexican bonds instead of Treasuries rose 5 basis points to 3.42 percentage points, the widest since April 1, after increasing 18 basis points yesterday, according to JPMorgan Chase & Co. A basis point equals 0.01 percentage point. Mexico’s government may hold off from tapping the IMF’s credit line and instead spend international reserves, said Gabriel Casillas, chief economist for Mexico and Chile at UBS AG. The bonds the central bank sells to adjust money supply yield more than the return obtained from investing reserves in assets such as U.S. Treasuries, he said. Reserves totaled $77.9 billion as of April 17, according to the latest central bank data available. “The level of reserves is pretty large,” said Casillas in an interview from Mexico City. Peso Rebound Barclays predicts the peso will rebound to 13.2 per dollar by year-end. Jimena Zuniga, an economist at Barclays in New York, said the bank “will see what health organizations say about the likely evolution of the situation before” considering changing that forecast. The peso will end 2009 at 14 per dollar, the median of 20 bank forecasts compiled by Bloomberg shows. The flu outbreak, which spread to nations such as the U.S., Spain and Canada, prompted authorities across Mexico to order mandatory closures of public places, including schools and bars. The World Health Organization raised its global pandemic alert to 4 from 3, saying the disease is no longer containable. It’s the highest level since the warning system was introduced in 2005. The disease will cut dollar inflows from tourists and curb consumer spending as more people stay at home, said Sergio Luna, head of economic research at Citigroup Inc.’s Banamex unit in Mexico City. “The economic impact will depend on how long this situation lasts,” Luna said. He said he’s keeping his forecasts for the peso at 13.5 by year-end and for the economy to shrink 3.5 percent this year. “If this lasts a few weeks, it will have a more notable impact on aggregate demand,” he said. Tourism Earnings Tourism attracted $13.3 billion into the economy last year, making it Mexico’s third-largest source of foreign currency behind oil exports and migrant worker remittances. Private consumption accounts for about 50 percent of total demand for goods and services. The government earlier this month forecast the economy will shrink 2.8 percent this year, the first contraction since 2001, amid the global recession. Mexico took advantage of a new program the IMF began offering last month for developing countries with “very strong fundamentals, policies and track record of policy implementation.” The cost of the IMF line, Mexico’s first since the 1995 “Tequila Crisis,” is low compared with other ways of increasing foreign reserves, central bank Governor Ortiz said April 1. Tapping the IMF line “is a possibility,” said Igor Arsenin, an emerging-markets strategist at Credit Suisse Group AG in New York. “It’s too early to say whether it will be necessary. The peso is most vulnerable, as well as portfolio flows and equities flows.”
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#1. To: Jethro Tull (#0)
Quit ruining Obama's 100th Day In Office. This recession-mongering is NOT the 'Change' Obama had in mind.
_________________________________________________________________________ Their illegal relatives up here need to pick up the slack.
Mexico; too corrupt to be allowed to fail.
After all we've learned over the past five years, or so, can we really say Mexico is any more corrupt than are our rulers?
"Don't go bashing my Bush" -JimRob
On the surface, yes. After all, our politicians went to the right universities and wear snazzy suits and talk a good game. Mexicon politicians are more crude and bestial. Don't worry, our politicians are debasing themselves every day in an effort to empty the tills of America.
_________________________________________________________________________ -JimRob A shooting friend sent me a link to some article on fr: they're in the midst of one of their eternal sheep-shearing 'thons.
Wondering if they have their 'Jeff Gannon' running around the palace all hours of the day and night...
"This man is Jesus,” shouted one man, spilling his Guinness as Barack Obama began his inaugural address. “When will he come to Kenya to save us?”
-Schweizerische Schuetzenzeitung (Swiss Shooting Federation) April, 1941
#2. To: Jethro Tull (#0)
#3. To: lodwick, X-15 (#2)
#4. To: Jethro Tull, X-15, all (#3)
#5. To: lodwick (#4)
#6. To: lodwick (#4)
"This man is Jesus,” shouted one man, spilling his Guinness as Barack Obama began his inaugural address. “When will he come to Kenya to save us?”
-Schweizerische Schuetzenzeitung (Swiss Shooting Federation) April, 1941
#7. To: Jethro Tull (#5)
"Don't go bashing my Bush"
#8. To: X-15, Jethro Tull, all (#6)
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