The Mexican Peso Crisis

3780 words 16 pages
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
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The possible reasons for the Mexican Government playing down the impact of the current account deficit could have been  Election Year  robust GDP growth for the past 6 years  "Pitchford Thesis“: Current account deficit is not bad if its driven by the private sector  Capital inflow due to currency reforms of the government

The current and capital accounts moved together in the early 1990s, but in 1994 capital inflows dropped dramatically while the current account deficit widened modestly. As a fraction of GDP, the current account deficit rose from 2.8 percent in 1989 to an average of more than 7 percent from 1992 to 1994.

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The Mexican Peso Crisis - 1994

FOREIGN CAPITAL INFLOW
Mexico’s private capital inflow from 1990 through 1994 totaled $95 billion, and it came in three main forms. 1. The first was direct investment by foreigners, usually companies, buying or building factories, retail stores, and the like in Mexico. This type of investment is frequently long-term because it involves commitments that cannot be reversed quickly and at low cost. It tends to change too slowly to play a major role in financial panics. 2. Capital inflow took the form of purchases in the Mexican stock market, which

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