The 1994 crisis that followed Mexico’s peso devaluation and caused a sharp fall in emerging-market shares was the Tequila Crisis. It began in December 1994 after Mexico devalued the peso, undermining investor confidence in the country’s financial system.
Mexico had accumulated substantial short-term dollar-linked obligations, including tesobonos. When investors feared that the government could not maintain the peso’s exchange-rate policy, capital flowed out rapidly. The resulting financial emergency spread to other emerging markets, especially in Latin America.
The United States organized a large rescue package with support from the International Monetary Fund and other institutions. The crisis is also known as the Mexican peso crisis or the December Mistake, a translation of the Mexican phrase “Error de diciembre.” “Tequila Crisis” is the distinctive nickname most often used internationally, and it predates the Asian financial crisis of 1997.