Mexico’s 1994 financial crisis, which caused a severe fall in its stock market and peso, is called the Tequila Crisis.
The crisis began after Mexico devalued the peso in December 1994, soon after President Ernesto Zedillo took office. Investors had become concerned about Mexico’s large short-term dollar-linked obligations, known as tesobonos, and about the country’s current-account deficit. The devaluation triggered capital flight and a much deeper financial emergency.
The United States and international institutions organized a rescue package worth tens of billions of dollars. The assistance helped Mexico meet its obligations and stabilize the currency, but the country experienced a sharp recession and falling living standards. The crisis also affected other emerging markets through investor contagion.
The nickname refers to tequila as a symbol associated with Mexico; it is not the formal name of a banking institution or a trading exchange. The episode is also called the Mexican peso crisis, while “Tequila Effect” describes its international spillovers.