The 1994 Mexican financial crisis began after the peso was devalued and is commonly known as the Tequila Crisis.
Mexico devalued the peso in December 1994 after mounting pressure on its exchange-rate regime. The country had large amounts of short-term, dollar-linked debt, and investors quickly lost confidence when they realized that reserves were insufficient to defend the currency.
The peso plunged, interest rates rose, and Mexican banks and companies faced severe financial stress. Because Mexico was closely connected to international capital markets, the shock spread beyond the country. Investors reassessed risks in other emerging markets, producing the so-called Tequila Effect.
The United States, the International Monetary Fund, and other institutions assembled a rescue package worth tens of billions of dollars. The nickname does not refer to a stock index; it describes the broader currency, debt, banking, and market crisis. Mexico’s economy later recovered, but the episode exposed the danger of relying heavily on short-term foreign financing.