The 1994 Mexican financial crisis that triggered a sharp sell-off known as the Tequila Crisis was the Tequila Crisis.
The crisis began in December 1994, shortly after Ernesto Zedillo became Mexico’s president. The government devalued the peso after foreign investors became concerned about Mexico’s current-account deficit, political instability, and the country’s large stock of short-term dollar-linked debt. The devaluation damaged confidence and caused rapid capital flight.
The peso lost a large share of its value, Mexican interest rates surged, and the economy entered a severe recession. Because investors had treated Mexico as a model emerging market, the shock spread to other developing economies. The international spillover became known as the “Tequila effect.”
The United States and international institutions assembled a rescue package of roughly $50 billion, including U.S. loan guarantees and IMF support. The crisis is distinct from the 1997 Asian financial crisis, although both showed how quickly investor withdrawals could cross national borders.