Which 1994 Mexican financial crisis caused a severe stock-market fall known as the Tequila Crisis?

The Mexican peso crisis caused the severe market fall known as the Tequila Crisis.

The Mexican peso crisis began in December 1994 after Mexico devalued the peso. The government had maintained a managed exchange-rate regime while relying heavily on short-term, dollar-linked debt known as tesobonos. Political instability, declining foreign reserves, and investor concern made the arrangement increasingly difficult to sustain.

When the peso was devalued, investors rapidly withdrew capital. The currency lost much of its value, interest rates rose, and Mexican stocks fell sharply. The crisis spread to other emerging markets, producing what became known as the Tequila Effect. The United States and international institutions organized a large financial support package to help Mexico meet its obligations.

The event is often confused with the 1997 Asian financial crisis, which involved a different group of economies and began with pressure on Asian currencies. Mexico's crisis also demonstrated how quickly capital outflows can turn an exchange-rate problem into a banking, debt, and stock-market crisis.