WSJ: FINANCIAL FLASHBACK 30 YEARS AGO: The ‘Tequila Crisis’ in Currency Markets

 By SIMON CONSTABLE

In December 1994, what Wall Street called the Tequila Crisis—named after the country’s national drink—startled international investors as the Mexican peso fell sharply and then some more. 

Part of the upheaval was blamed on an armed conflict that broke out in January between Mayan Indians and Mexico. A cease-fire was reached, but in December, rebels threatened to break it.

At the same time, investors increasingly favored other emerging markets and redirected capital away from Mexico.

As a result, the peso’s value initially plunged close to its government-mandated lower limit. Mexico’s central bank tried to steady the peso with higher interest rates. But it didn’t last, and the government cut peso’s value further. 

Mexico had been “one of the bright lights of the world’s new panoply of emerging markets,” made more so by new trade pacts such as the North American Free Trade Agreement, The Wall Street Journal reported on Page One. But investors’ confidence was damaged by the sudden devaluation.

In January 1995, the month after the peso crisis flared, the International Monetary Fund, the U.S. and others announced a $50 billion package of rescue loans for Mexico.  Read more here.

Image credit: The Wall Street Journal, Dec. 22, 1994

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