As announced by the IMF today Mexico was the first country to indicate its interest in the Flexible Credit Line, dedicated for emerging markets countries with strong fundamentals, and not subject to any policy conditionality. Mexico, if approved by the Board, will draw up to $47bn, ten times its quota at the IMF.

Mexico is an investment grade country BBB+, but it is perceived as a country where the rule of law is hardly enforced. Therefore it is worth asking whether sound economies from Central and Eastern Europe, such as Poland,  should consider tapping IMF FCL to fill the foreign funding gap. The question should go even further. Austrian banks lent to the CEE countries an equivalent of 70% of Austria GDP, so problems with the region will inevitably lead to a collapse of Austria financial sector. Poland or Czech Republic would feel highly uncomfortable to be in the same basket as Mexico, but I would make a hell lot of a difference if Austria used FCL, as a precautionary instrument, and then recapitalized its daughter banks in CEE, which would help avoid recession in the regiona and will help Austrian banks (which will be burnt in Ukraine anyway). After Austria, Czech Republic and Poland could participate as well, and the threat of a crisis looming over this part of the world would definitely be over. For your information FCL accesibility conditions are below:

“The pre-set qualification criteria are at the core of the FCL and serve to signal the Fund’s confidence in the qualifying member’s policies and ability to take corrective measures when needed. At the heart of the qualification process is an assessment that the member (a) has very strong economic fundamentals and institutional policy frameworks; (b) is implementing-and has a sustained track record of implementing-very strong policies, and (c) remains committed to maintaining such policies in the future. The relevant criteria for the purposes of assessing qualification for an FCL arrangement include: (i) a sustainable external position; (ii) a capital account position dominated by private flows; (iii) a track record of steady sovereign access to international capital markets at favorable terms; (iv) a reserve position that is relatively comfortable when the FCL is requested on a precautionary basis; (v) sound public finances, including a sustainable public debt position; (vi) low and stable inflation, in the context of a sound monetary and exchange rate policy framework; (vii) the absence of bank solvency problems that pose an immediate threat of a systemic banking crisis; (viii) effective financial sector supervision; and (ix) data transparency and integrity. Strong performance against all these criteria would not be necessary to secure qualification under the FCL, as compensating factors, including corrective policy measures under way, would be taken into account in the qualification process”.