Mexico's Tequila Crisis of 1994–95

In the early 1990s Mexico was celebrated as a reform success: inflation had fallen, state companies had been privatized and NAFTA was about to take effect. Foreign investors poured money into Mexican government securities, financing a large current account deficit, while the peso was held within a narrow band against the dollar. In 1994 political shocks, including the Zapatista uprising in Chiapas and the assassination of presidential candidate Luis Donaldo Colosio, unsettled investors.

The government increasingly issued 'tesobonos', short-term bonds linked to the dollar, and reserves dwindled. In December 1994 the new administration devalued, then floated the peso, which lost about half its value within weeks. Mexico's economy contracted sharply in 1995, and the crisis spread to other Latin American markets, the 'tequila effect'. The United States and IMF assembled a rescue package of about $50 billion. Mexico repaid the US loans early, but the crisis showed how quickly investor sentiment could reverse.