This website uses cookies to ensure you have the best experience. Learn more

The Economic Impact Of The Mexican Peso Crisis

1617 words - 6 pages

In 1994, the world saw the decline of the Mexican Peso, leading to what is now considered as the Mexican Peso Crisis. The crisis was characterized by the drastic decline in the value of the Mexican Peso. The Mexican Peso Crisis is considered significant because of its impact on other parts of the region, including Brazil. The following is a discussion of the causes and impact of the Mexican Peso Crisis.

The events/causes that led up to the devaluation of the peso
The Mexican Peso Crisis can be traced to the decision of then president Zedillo’s decision to reverse the government’s then policy that imposes tight controls on the Mexican Peso. This decision is considered by critics as an important factor that led to the Mexican Peso Crisis (Mathur, 17). It is important to note that the lifting of the tight controls on the Mexican Peso was intended to make some adjustments that would intentionally devaluate the Mexican Peso. However, the aim for the devaluation was just gradually in order to make the country competitive in the international business environment (Bhagwati, 8). The main factor that made the decision contribute to the Mexican Peso Crisis was that it was not properly handled as was necessary. The handling of the lifting of the currency controls was not effective at the political level or political aspect, such that the Mexican Peso experienced drastic and continued devaluation, which was opposite to the planned gradual and small devaluation of the currency. The result of the drastic decline of the Mexican Peso eventually resulted in the crisis (Mathur, 17).
The decision to lift the currency controls can also be traced to the pre-election decisions that were aimed to stimulate the Mexican economy in order to address the unsustainable nature of a significant percentage of the business in the country. However, this objective was not implemented properly, thereby leading to the Mexican Peso Crisis (Bhagwati, 8). It should be noted, prior to the crisis, there was already an increasing concern of economists and critics about the credit quality that was provided by the financial sector at the time when there was low interest rates that were applied by the government. There were also issues about the inappropriateness or ineffectiveness of the standards that were used in extending credit by the financial sector (Calvo, 171).
Another important factor that affected the financial sector and would eventually contribute to the development of the Mexican Peso Crisis was that the risk premium of the Mexican economy was significantly impacted by the armed conflicts that happened in Chiapas at that time. This armed conflict led to a decline in investor confidence about business in Mexico, such that there was a decline in the investment potential of the region (Mathur, 18).
In addition, in the decade leading to 1994, the government saw an increasing expenditure for various projects in the country. The result was an increased reduction in the funds...

Find Another Essay On The Economic Impact of the Mexican Peso Crisis

Mexican Economic Crisis Essay

866 words - 3 pages After nearly a decade of stagnant economic activity and high inflation in Mexico, the Mexican government liberalized the trade sector in 1985, adopted an economic stabilization plan at the end of 1987, and gradually introduced market-oriented institutions. Those reforms led to the resumption of economic growth, which averaged 3.1 percent per year between 1989 and 1994. In 1993 inflation was brought down to single-digit levels for the first time

The impact of economic crisis on marital life in Romania

1645 words - 7 pages the family's perceived financial inability to meet family necessities, is distinguished from economic conditions that include more structural indicators of poverty (e.g., Conger et al., 1990, 2002). In this study, we examined the impact of economic pressure on family relationships within the Romanian context. Drawing from Conger's family stress model of economic stress (e.g., Conger & Elder, 1994; Conger et al., 2002), we propose that economic

Impact of current economic crisis on Singapore

1869 words - 7 pages Assignment Submission Form(All hardcopy/softcopy assignments to be submitted onA4 paper only along with these cover pages)Page 1(Do not write your Student Roll No. on this page)Course Name EPP2Assignment Title Impact of current economic crisis on SingaporeSubmitted by: Neha Sorathia (GNOVGLM068)_______________(Name of One Group Member submitting the Assignment & Group Number)SPJCM Honour CodeI will represent myself in a truthful mannerI will

The Global Economic Crisis

788 words - 3 pages In the late 2000s, the World suffered from a big global economic crisis which caused “the largest and sharpest drop in global economic activity of the modern era”, in which “most major developed economies find themselves in a deep recession”, according to McKibbin and Stoeckel (1). Because its consequences have a very big impact to the whole world, many economists and scientist have tried to find the causes of the crisis; and some major causes

Improving the Economic Crisis

1018 words - 4 pages Improving the Economic Crisis As hard as it is to say, the economic crisis started around the same time the equine slaughter plants closed down. In no way did this create crisis, but a landslide action that caused many industries to plummet. One of these industries is the farming industry. While it is a sad situation to start up again, opening the equine slaughter plants will strengthen many industries and open a few more jobs for people

The Debt, Outline Of Canada's Economic Crisis, An Economic Catastrophe

939 words - 4 pages Few national economic issues have generated the same kind of concern as has the federal debt problem of Canada. There is a pressing need for long-term policies to lift Canada out of the national debt hole it is in. Eliminating the debt will not only free up money being spent on interest and reduce taxes, but make Canada a more feasible place for future generations to live and work.Interest on the debt has eroded the government's ability to fund

Impact of Foreclosure Crisis on the Economy

1412 words - 6 pages dream to own their own homes. I have heard people on TV and on the national stage debate the reasons and the impact of the foreclosure crisis on the economy. This debate has been frustrating because people focus too much on arguing who is right or who was wrong; some people claim the foreclosure crisis is from a lack of oversight over mortgage companies that should have been regulated more by the government in how they make their loans. Other

The Economic Impact of Legalizing Marijuana

1717 words - 7 pages a lot of things are being brought up. One of the main topics that come up is the economic value that this revenue will generate and how it will affect the states. The legalization of marijuana will have a huge impact on the economics of the United States to the point that I feel that government will assist in the continuation of these companies. If it is passed in the government the selling of marijuana could generate millions of dollars in

Exploration of the Economic/Profitable Dimensions of Illegal Mexican Immigration for U.S. Economy

821 words - 3 pages has hurt both economies. By creating a system of legal migration that fosters economic development for both nations, many of the problems along the border of each would dissolve. NAFTA, which offers some new hope to the misery of the Mexican/American interdependence, is not enough. It is time to reevaluate the failing migration laws and border policies in order to bring profit to both government, both peoples, and alleviate some of the misery along the border.

The Impact of the Oil Crisis on the American Economy

5691 words - 23 pages anticipation. This conflict has done much to raise the price of oil worldwide. The Affect of the Oil Crisis upon the Economy Since 1970, sharp increases in the price of oil have always been followed by economic recession in the United States (Blake, 1997). The impact on the economy of U.S. dependence on foreign oil is great. Because the U.S. imports over half its oil, the energy efficiency of the nation is steadily decreasing. In 1996, the U.S

Alan Greenspan’s Role in the Economic Crisis of Our times

1071 words - 5 pages Former Chairman of the Federal Reserve Alan Greenspan has played a key role in the economic crisis of the late 2000s (some would point out that we are still experiencing its aftershocks to this day). It’s not so much what Greenspan did as much as what he didn’t do. Greenspan’s hesitation when it comes to regulating the banking sector was motivated in part by the free-market philosophy he has propagated over his career as a leading world

Similar Essays

The Mexican Peso Crisis Essay

1557 words - 6 pages information and market sentiments that had over-valued the market potential. References : The Mexican Peso Crisis : the Foreseeable and the Surprise Nora Lustig, Brookings Institution, June 1995 Mexico 1994 versus Thailand 1997 Thailand Development Research Institute, 1997 Exchange-Rate Regimes, Speculative Attacks and Currency Crisis University of Essex An Early Warning System for Financial Crisis Dominic Barton, Roberto Newell and Gregory Wilson, Mc Kinsey & Company, 2003 The Impact of the Mexican Crisis of 94-95 on the Maquiladora Industry Paul Cooney, Queens College What NAFTA Brought to Mexicans? Jim Callis, March 1998

The Mexican Peso Crisis Essay

2145 words - 9 pages 1980s. During that period of time, Mexico was able to reduce fiscal imbalance, lower inflation rate, and ensure labour support for government's economic programs. However, in 1994, the election year, the movement of foreign exchange reserves, currency overvaluation, and Mexican government's inflationary policies had led Mexico to high inflation and high foreign debt. The additional cause of the crisis was that the Bank of Mexico failed to raise

After The Peso Crisis, The Mexican Recovery With Maquilas

3340 words - 13 pages situation as this was seen in the beginnings of the Mexican Peso Crisis in 1994/1995. In the first quarter of 2004, foreign direct investment had grown to nearly $10 billion, almost $8 billion more than the previous quarter. In this quarter, there was still a $1.7 billion current account deficit. Each quarter yielded an increase in the country's reserves but this was all from liabilities. Investors saw a country that was increasing the amount of money

Mexican Peso Crisis: Irregularities Of Deregulation

2898 words - 12 pages Mexican Peso Crisis: Irregularities of Deregulation It is one thing to liberate an economy or a market; it is another to lift all regulations on such market. Economic liberalization should be done in an appropriate, intelligent manner. The lack of proper regulation can lead to a snowballing effect where a seemingly trivial matter can lead up to a terrible outcome. This was the case of Mexico in 1994 where birth was given to the “Tequila