The Mexican Peso Crisis
crisisThe Mexican Peso Crisis 1994
Globalization Project Report
Report submitted by: Akanksha Agrawal Namit Agrawal Saurabh Harkauli Apurv Jain Gaurav Jain Nikhil Jaiswal Ahamed Moidu Tushar Pandey D001 D002 D021 D023 D025 D028 D039 D046
The Mexican Peso Crisis - 1994
CONTENTS S. No. Topic
1 2 3 4 5 6 7 8 9 10 11 12 13 Introduction Political Turmoil 1993 – 1994 Scenario In Mexico Foreign Capital Inflow Sterilization Intervention Conversion Of Cetes To Tesobonos Dealing With The Crisis The December Mistake Bailout & Performance Since Crisis Tequila Effect – Brazil And Argentina Current Situation Conclusion References
Pg. No.
3 3 4 6 6 7 8 10 10 11 11 12 13
Page 2
The Mexican Peso Crisis - 1994
INTRODUCTION
In the early 1990s the Mexican economy seemed healthy. It was growing again after the “lost decade” of the 1980s, when the 1982 debt crisis and the 1986 collapse of oil prices sent the economy reeling. Moreover, inflation was being reduced substantially, foreign investors were pumping money into the country, and the central bank had accumulated billions of dollars in reserves. Capping the favorable developments was the proposal to reduce trade barriers with Mexico’s largest trade partner, the United States, through the North American Free Trade Agreement (NAFTA). The agreement eventually took effect at the beginning of 1994. The hard times of the 1980s seemed to be history. Less than twelve months after NAFTA took effect, Mexico faced economic disaster. On December 20, 1994, the Mexican government devalued the peso. The financial crisis that followed cut the peso’s value in half, sent inflation soaring, and set off a severe recession in Mexico.
POLITICAL TURMOIL 1993 – 1994
As 1993 drew to a close, the economic outlook for Mexico appeared bright. Recently approved by the U.S. Congress, NAFTA was slated to take effect at the beginning of 1994. By lowering trade barriers between the United States and Mexico, NAFTA was expected to
Globalization Project Report
Report submitted by: Akanksha Agrawal Namit Agrawal Saurabh Harkauli Apurv Jain Gaurav Jain Nikhil Jaiswal Ahamed Moidu Tushar Pandey D001 D002 D021 D023 D025 D028 D039 D046
The Mexican Peso Crisis - 1994
CONTENTS S. No. Topic
1 2 3 4 5 6 7 8 9 10 11 12 13 Introduction Political Turmoil 1993 – 1994 Scenario In Mexico Foreign Capital Inflow Sterilization Intervention Conversion Of Cetes To Tesobonos Dealing With The Crisis The December Mistake Bailout & Performance Since Crisis Tequila Effect – Brazil And Argentina Current Situation Conclusion References
Pg. No.
3 3 4 6 6 7 8 10 10 11 11 12 13
Page 2
The Mexican Peso Crisis - 1994
INTRODUCTION
In the early 1990s the Mexican economy seemed healthy. It was growing again after the “lost decade” of the 1980s, when the 1982 debt crisis and the 1986 collapse of oil prices sent the economy reeling. Moreover, inflation was being reduced substantially, foreign investors were pumping money into the country, and the central bank had accumulated billions of dollars in reserves. Capping the favorable developments was the proposal to reduce trade barriers with Mexico’s largest trade partner, the United States, through the North American Free Trade Agreement (NAFTA). The agreement eventually took effect at the beginning of 1994. The hard times of the 1980s seemed to be history. Less than twelve months after NAFTA took effect, Mexico faced economic disaster. On December 20, 1994, the Mexican government devalued the peso. The financial crisis that followed cut the peso’s value in half, sent inflation soaring, and set off a severe recession in Mexico.
POLITICAL TURMOIL 1993 – 1994
As 1993 drew to a close, the economic outlook for Mexico appeared bright. Recently approved by the U.S. Congress, NAFTA was slated to take effect at the beginning of 1994. By lowering trade barriers between the United States and Mexico, NAFTA was expected to