The 1994 Mexican financial crisis that triggered sharp falls in emerging-market stocks was called the Tequila Crisis.
The crisis began in December 1994 after Mexico devalued the peso. Investors had become concerned about Mexico’s current-account deficit, short-term dollar-linked debt, political instability, and the country’s ability to maintain its exchange-rate policy. The devaluation then accelerated capital outflows and financial stress.
The shock spread beyond Mexico. Investors reassessed risks in other emerging markets, producing what became known as the “Tequila Effect.” The United States, Canada, and international institutions arranged a rescue package that helped Mexico meet its external obligations and stabilize its currency.
The episode is also called the Mexican peso crisis. “Tequila Crisis” is the standard English name for the broader financial event, not merely the peso’s devaluation on its own. It demonstrated how quickly international investors could transmit a local currency crisis through global markets.