Bank of  Mexico Injects 30,000 Million Dollars

Bank of  Mexico injects 30,000 million dollars to avoid the collapse of the economy. 

Bank of Mexico Tries to Avoid the Collapse of the Second Latin American Economy

The unprecedented deployment of resources seeks to facilitate access to credit for small and medium-sized companies, greatly affected by the coronavirus crisis.

Bank of Mexico tries to avoid the collapse of the second Latin American economy. In a series of unprecedented measures, the central bank announced on Tuesday the injection of 750,000 million pesos, about 30,000 million dollars at today’s exchange rate, which represents 3.3% of GDP. The main objective of this rescue operation is to facilitate access to credit for small and medium-sized companies, in danger of bankruptcy due to the suspension of activities caused by the coronavirus. It is a faculty, that of lender of last resort, which the institution had not used until now, according to the analysts consulted. In this way, the central bank intends to give air to millions of entrepreneurs before the shock of the Ministry of Finance, which has not presented a forceful emergency plan for the coming economic crisis.

The institution makes this exceptional decision in an exceptional context. The IMF and ECLAC predict a reduction of more than 6% of GDP for this year, one of the worst falls in the region. In addition, three agencies recently downgraded the sovereign debt and Petroleos Mexicanos (Pemex). For the oil company, two agencies reduced it to junk, with the consequent increase in interest to borrow. The Bank points to the negative impact of the pandemic on financial markets, as well as the “abrupt drop” in oil prices, to justify the reduction of 50 points in the interest rate to 6% and the deployment of  “Additional measures” that accompany it.

Among the list, highlights the expansion of the scope of a liquidity mechanism aimed at banks and the creation of a window for the exchange of debt securities for government securities. However, the most important measure is aimed at facilitating access to credit for small and medium-sized companies. The Bank will support 250,000 million pesos, 10,000 million dollars, to development and commercial banks that seek to alleviate this sector of the economy, the most vulnerable to the shock caused by the suspension of non-essential activities.

This support is given in parallel to the main commitment of the Mexican Government for economic recovery – the delivery of some three million loans of 25,000 pesos each to companies in both the formal and informal sectors. The monetary policy measure announced on Tuesday may complement this point on the Executive’s agenda, although there are substantial differences between one program and another. Unlike government support, Banco of  Mexico’s resources exclude informal companies and their distribution passes through banking institutions, which will decide the amount of the loans and the conditions to access them.

Bank of Mexico’s liquidity injection strategy may depend on the action of the Government, until now very reticent to alleviate the tax burden on companies. President Andrés Manuel Lopez Obrador has ruled out tax exemptions, reductions or deferrals. The fiscal measures adopted by the Executive account for less than 1% of GDP, according to the IMF, a much lower percentage than the weight of the stimulus packages of most large Latin American economies.

 

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Bank of  Mexico injects 30,000 million dollars to avoid the collapse of the economy. 

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