Mexican peso crisis
What is the Mexican peso crisis?
The sudden devaluation of the peso by the Mexican government in December 1994 resulted in a financial crisis that cut the peso’s value in half and triggered a severe recession.
Where have you heard about the Mexican peso crisis?
The economic crisis made headline news across the world in the mid-1990s. It’s also referred to as the ‘Mexican Shock’ and, more informally, the ‘tequila crisis’.
What you need to know about the Mexican peso crisis.
Contributing factors to the crisis included prolonged overvaluation of the peso, excessive public spending during an election year and political and social instability. The eventual devaluation of the peso by the government led to a capital flight by investors who began withdrawing capital from Mexican investments which led to a further weakening of the currency.
In January 1995, the United States and IMF announced a $50 billion bailout that, together with a package of tax increases and spending cuts put in place by the Mexican government, prevented a sovereign default and helped stabilise the Mexican economy.