The 1994 Mexican peso crisis that triggered a wider emerging-market sell-off was nicknamed the Tequila Crisis.
Mexico devalued the peso in December 1994 after investors became concerned about the country’s current-account deficit, political instability, and large amount of short-term dollar-linked debt. The devaluation intensified capital flight and made it difficult for Mexican borrowers to repay obligations.
The crisis spread through investor behavior known as the “tequila effect,” as markets reassessed risks in other emerging economies. The United States, the International Monetary Fund, and other institutions assembled a rescue package worth roughly 50 billion dollars, helping Mexico meet its obligations.
The nickname is a cultural reference to Mexico’s internationally known drink, not the formal name of a single stock exchange crash. The episode is also called the Mexican peso crisis and is an important example of contagion through global capital markets.