Mexico Tequila Crisis
Good evening,
For this assignment I chose to research the Mexican Financial crisis of 94-95. This crisis was also referred to as the “Tequila Crisis.” The history of this financial crisis dates back to when the Peso started to become devalued in December of 94. Eventually this event caused the greatest depreciation of any currency when the Peso went from a value of 5.3 Pesos per US Dollar to over 10 Pesos per US Dollar from December 94 to November 95. This was also the most severe recession in over a decade with GDP falling over 6% in 1995. (A.M. 2012).
This crisis came about because of the large scale reform in Mexico during the 80’s. Among these reforms were president Miguel de la Madrid’s (82-88) decision to liberalize trade …show more content…
To them I say that even though Mexico paid back the US quickly they still needed to pay back the IMF of which the US provided 18% of its funds. This placed a huge responsibility on US taxpayers. I feel that this type of bailout is not a good thing and I do not support the IMF stepping in to bailout any country. As a result of this bailout there was a worldwide criticism, as there should’ve been. Critics claimed that this bailout creates moral hazard and because of this Mexican experience that other countries would expect to be bailed out if in similar situations. Another reason I feel that this didn’t work is because although there have been changes as a result of this bailout the lessons weren’t enough to stop the Asian Crisis of 97-98 nor the Argentine default of 2001. Clinton claimed that the IMF “put in place a tough adjustment program to get its economic house in order,” when in fact it was the IMF adjustment that allowed Mexico to put off necessary reforms. For an example look at the state owned oil monopoly Pemex, who has not been regulated and as a result gas and oil prices in Mexico are higher than in the US. (I.V.,L.R.
For this assignment I chose to research the Mexican Financial crisis of 94-95. This crisis was also referred to as the “Tequila Crisis.” The history of this financial crisis dates back to when the Peso started to become devalued in December of 94. Eventually this event caused the greatest depreciation of any currency when the Peso went from a value of 5.3 Pesos per US Dollar to over 10 Pesos per US Dollar from December 94 to November 95. This was also the most severe recession in over a decade with GDP falling over 6% in 1995. (A.M. 2012).
This crisis came about because of the large scale reform in Mexico during the 80’s. Among these reforms were president Miguel de la Madrid’s (82-88) decision to liberalize trade …show more content…
To them I say that even though Mexico paid back the US quickly they still needed to pay back the IMF of which the US provided 18% of its funds. This placed a huge responsibility on US taxpayers. I feel that this type of bailout is not a good thing and I do not support the IMF stepping in to bailout any country. As a result of this bailout there was a worldwide criticism, as there should’ve been. Critics claimed that this bailout creates moral hazard and because of this Mexican experience that other countries would expect to be bailed out if in similar situations. Another reason I feel that this didn’t work is because although there have been changes as a result of this bailout the lessons weren’t enough to stop the Asian Crisis of 97-98 nor the Argentine default of 2001. Clinton claimed that the IMF “put in place a tough adjustment program to get its economic house in order,” when in fact it was the IMF adjustment that allowed Mexico to put off necessary reforms. For an example look at the state owned oil monopoly Pemex, who has not been regulated and as a result gas and oil prices in Mexico are higher than in the US. (I.V.,L.R.