(Bloomberg) -- Mexico is considering using its share of recently-approved International Monetary Fund reserves, worth about $12 billion, to repay the country's debts, President Andres Manuel Lopez Obrador said.
Although the funds add to the central bank reserves, Mexico has enough bandwidth to use them to pay down debt, Lopez Obrador said at a daily press conference Wednesday.
“The reserves have grown a lot and they pay very little interest,” he said. “We could use these resources to pay debt in advance,” Lopez Obrador said, without detailing which debts the government is considering prepaying.
After the comments, deputy central bank governor Gerardo Esquivel wrote on Twitter that under Mexican law the funds cannot be used to pay debt since they are part of the bank's international reserves.
“Currently the reserves cannot directly be used to pay back” government debt, said Carlos Capistran, head of Mexico and Canada economics at Bank of America. “If that door is open then the government would be able to use all the reserves as well and the market may not like that.”
Earlier this month, the Fund'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.
Mexico's benchmark 10-year dollar bonds edged higher, up nearly 0.1 cents on the dollar after Lopez Obrador's comments. The move nearly erased the day's losses, and the bonds continue to trade at 98.2 cents.
Read More: IMF Nations Approve Record $650 Billion to Aid Virus Fight
Lopez Obrador, known as AMLO, has run one of the world's most austere governments during the pandemic, declining to borrow extra money to increase spending and arguing that a lower debt load will help Mexico's recovery.
While the IMF intends for the resources to be used for health and pandemic responses, officials also have acknowledged that many nations will use them to repay debt, including loans from the Fund.
The IMF expects the reserves to be allocated on Aug. 23.
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