The 1994 Mexican financial crisis was called the Tequila Crisis. It began after Mexico devalued the peso in December 1994, exposing weaknesses in the country’s financial position and causing a rapid loss of investor confidence.
Mexico had attracted substantial foreign capital, much of it invested in short-term instruments. Political instability, concerns about the current-account deficit, and pressure on the peso increased during 1994. When the government allowed a devaluation, investors rushed to withdraw funds.
The crisis spread beyond Mexico through what became known as the “tequila effect.” Emerging-market assets in other countries came under pressure as investors reassessed risks. The United States and international institutions assembled a large support package to help Mexico meet its obligations and stabilize the currency.
The episode is sometimes confused with the 1997 Asian financial crisis. The Asian crisis began with Thailand’s baht devaluation, whereas the Tequila Crisis centered on Mexico’s peso and occurred several years earlier.