Mexico’s unexpected move to boost its credit line from the International Monetary Fund suggests the nation isn’t taking lightly the prospect of a Donald Trump presidency or Britain’s exit from the European Union.
On Friday, the country increased the size by a third to a record $88 billion and extended it by two years. The decision surprised market watchers because the previous $67 billion agreement wasn’t set to expire until November.
To Grupo Financiero Banorte SAB — Mexico’s biggest publicly traded bank — the government is seeking to bolster its ability to withstand overseas shocks in the event of a so-called Brexit and a victory by Trump, who has vowed to implement policies that may harm Latin America’s second-biggest economy. Mexico is already contending with increased volatility in its financial markets. The peso tumbled 7 percent in May alone, prompting foreign investors to slash holdings of the nation’s bonds.
“The Mexican authorities tried to negotiate the increase before a potentially volatile summer,” said Alejandro Padilla, the head of fixed-income and currency strategy at Banorte in Mexico City. “There’s big uncertainty surrounding Brexit and the potential effects for financial markets. The theme of Trump and the U.S. elections is also something you need to consider, because he’s been very clear about his foreign policy.”