The 1994 Mexican financial crisis that caused sharp falls in Mexico’s stock market and the peso was called the Tequila Crisis.
The crisis began in December 1994 after Mexico devalued the peso. Investors rapidly withdrew capital, and the currency lost much of its value. Mexican companies and banks faced heavier burdens because some liabilities were denominated in U.S. dollars, while confidence in the country’s financial system deteriorated.
The episode is also known as the December Mistake, referring to the government’s handling of the devaluation. Mexico’s stock market dropped sharply, and the turmoil threatened wider financial effects because international investors held Mexican securities and because the country was closely integrated with North American markets.
The United States, the International Monetary Fund, and other institutions assembled a major support package. The crisis later became an important case study in how exchange-rate policy, short-term foreign borrowing, political uncertainty, and investor confidence can combine to produce a sudden financial shock.