Mexico’s 1994–95 financial crisis and stock-market turmoil are commonly called the Tequila Crisis.
The crisis began after investors lost confidence in Mexico’s economic policies and ability to maintain the peso’s exchange-rate arrangement. In December 1994, the government devalued the peso, causing a rapid loss of confidence and capital flight. Mexico struggled to refinance short-term, dollar-linked obligations known as tesobonos.
The turmoil spread beyond Mexico through emerging-market financial markets, producing what became known as the Tequila Effect. The United States organized a rescue package involving loans and guarantees, while the International Monetary Fund and other institutions also helped stabilize Mexico’s finances.
The Tequila Crisis is sometimes confused with the 1997 Asian financial crisis, but they were separate episodes. Mexico’s crisis occurred several years earlier and centered on the peso, foreign reserves, short-term debt, and the country’s exchange-rate policy.