What nickname is commonly given to Mexico’s 1994–95 financial-market crash?

Mexico’s 1994–95 financial-market crash is commonly called the Tequila Crisis.

The crisis began after Mexico devalued the peso in December 1994. Investors had become concerned about Mexico’s foreign-exchange reserves, its current-account deficit, and the large amount of short-term, dollar-linked government debt known as tesobonos. Once confidence broke, capital rapidly left the country and the peso lost much of its value.

The shock spread beyond Mexico, particularly to other emerging markets in Latin America. The United States and international institutions assembled a large assistance package to help Mexico meet its obligations and stabilize its financial system.

The term “Tequila Effect” is also used for the crisis’s spillover into other markets. It should not be confused with the 1982 Mexican debt crisis or with later crises involving Argentina and Brazil. Mexico’s economy eventually recovered, but the episode became a classic example of how exchange-rate policies and short-term foreign-currency debt can magnify a market panic.