Tequila Crisis

During “The Tequila Crisis” the global international capital market had a huge impact on the economic, political and social development of Mexico. Mainly the global international capital market hurt all three categories of the economic, political and social sides Mexico contains. Although, some countries tried to help Mexico during their recession it was not enough to help the devaluation of the Peso. Economic= Mexico’s economy underwent a recession as a result of the peso’s devaluation during 1994-1995. The GDP of Mexico decreased by 6.2% during 1995. The Mexican treasury issued short-term debt instruments in domestic currency with a guaranteed repayment in U.S dollars, which attracted foreign investors. On December 20th, 1994 the central bank devalued the peso, which led investors’ fear that risk premiums would go even higher. To counter act the resulting capital spike, the bank raised interest rates but higher costs of borrowing only hurt the economy even more. In January 1995 the United …show more content…
On March 23, 1994, Luis Donaldo Colosio who was a presidential candidate of the ruling Institutional Revolutionary Party (PRI) hand picked successor and essentially president-elect was assassinated while on campaign trial. The assassination of presidential candidate Luis Donaldo Colosio and peasant uprising resulted in political instability, which caused investors to place an increased risk premium on Mexican assets. Mexican economic history has shown that economic crisis match the electoral rhythm of the six-year presidential sentence. Foreign confidence was severely affected. The inflow of foreign capital dried up and began to reverse. Investors both foreign and domestic began to move their savings in the United States and other off shore sites due to the possible financial consequences of Mexico in an unstable political