Mexican Peso

Crisis of the Mid

1990s
By:
By:
Domynique Paul
Renee Williams
Blossom Walker
 The Financial crisis of Mexico 1994 - 1995
The 1994 Crisis was a sudden devaluation of the Mexican peso.
There was panic on the stock market as stocks fell
The market lost another 7% of its value as the melt down of the mexican
market began.
Millions of Americans that had over 53 billion invested in the stock
market had to sell their shares.
The peso continued to collapse losing 40% of its value in just 3 weeks.
 Financial crisis Cont'd
The crisis continued to grow despite the 10 million dollars in aid that
was sent from the US and Canada. (Partners in NAFTA)
The crisis was growing rapidly there was soaring inflation, bonds
becoming due and high interest rates.
The crisis of Mexico could potentially put American companies and
businesses that traded with them out of a job.
Migration of Mexicans to the US as they wanted to flee from the crisis.
 The Mexican debt bailout
In 1995 there was a loan approval from President Clinton to
Mexico.
He decided to loan Mexico from the US exchange stabilization
fund as the approval from congress could have taken too long and
the impact on the US economy could have been to severe.
With the aid from the US and other countries including the IMF, it
would be enough to save the sinking peso. The funds gave
Mexico’s currency quite the boost and this was important for the
US economy.
 Causes of the Mexican Crisis
The major cause of the Peso Crisis was political. The outgoing president Carlos Salinas de Gortari
spent too much money trying to ‘stimulate' the Mexican economy in hopes of swaying public favor
to remain in power. His party had been in office for almost 70 years and he wanted to continue that.

During that same year, the country experienced major events that lowered the general populace’s
confidence in the political system. A major leftist rebellion and two political assassinations did not
make people feel safe in investing in Mexico.

These reasons, along with the fact that the peso was overvalued (as Salinas wanted to keep it at its
remained fixed rate and not devalue during an election year) investors became worried. The money
that would have been put into Mexico's economy was placed elsewhere as there was less risk. This
drop of incoming investment, and international lenders’ unwillingness to renew Mexico's loans, led
to the peso crisis.
 Lessons that can be learnt from the Crisis in
Mexico
-There is need for vigilance and discipline in the market
-Large & unsustainable current account deficits should be avoided
-Excessiver over-valuation of currencies should be avoided
-There is need for the regular publishing and timely dissemination
key economic data
 References
Chen, J. (2020, July 8). What is the 1994 Mexican Peso Crisis. Investopedia.

https://www.investopedia.com/terms/t/tequilaeffect.asp#:%7E:text=On%20December%2020%2C%201994%

2C%20the,between%2013%20and%2015%20percent.&text=Foreign%20capital%20not%20only%20fled,vul

nerability%20was%20not%20well%20known.

danieljbmitchell. (2008, June 1). The Mexican Peso Crisis of the Mid-1990s. YouTube.

https://www.youtube.com/watch?v=hTWLEhlq1cQ

Schimmel, I. (n.d.). Economics. Retrieved March 24, 2021, from

https://www.enotes.com/homework-help/what-was-causes-mexican-peso-crisis-argentine-peso-313793#answ

er-392712
 References
Sachs, Jeffrey & Tornell, Aaron & Velasco, Andres. (1995). The Collapse of the Mexican Peso: What Have We
Learned?. Economic Policy. 11. 10.2307/1344521.

Drawing lessons from the Mexican Crisis: Preventing and Resolving FINANCIAL CRISES--THE role of the
IMF -- address by MICHEL CAMDESSUS. (1995, May 22). Retrieved March 24, 2021, from
https://www.imf.org/en/News/Articles/2015/09/28/04/53/spmds9508

Whitehead, J., & Kravis, M. (1996, January). Lessons of the Mexican Peso Crisis. Retrieved March 24, 2021,
from https://cdn.cfr.org/sites/default/files/pdf/1998/09/Mexico_Peso_Crisis.pdf

Griffith-Jones, S. (1997, May). Causes and lessons of the mexican peso crisis. Retrieved March 24, 2021, from
https://www.wider.unu.edu/sites/default/files/WP132.pdf