The Unforgiving ‘Market’ and the Tequilazo

Guillermo Calvo

Chapter 8 in Financial Reform in Developing Countries, 1998, pp 220-244 from Palgrave Macmillan

Abstract: Abstract Mexico’s financial débâcle and its impact on other emerging markets (the ‘Tequila effect’) has raised many fundamental questions. Mexico achieved fiscal balance in 1993, undertook several fundamental market-oriented reforms, signed a free trade agreement with a very large market (the NAFTA), became a member of the OECD, and was hailed by international institutions as a paramount example of successful reform. Yet the 1994 devaluation of 20 December brought the economy down like a house of cards. Output fell by more than 7 per cent in 1995, the current account deficit sharply swung from about 8 per cent of GDP in 1994 to zero and investors turned their noses away from high-yield Mexican public debt, even though the international community had pledged about $50 billion in a rescue package. In addition, Mexican problems quickly spread around the world’s emerging markets, including those exhibiting long and enviable track records.

Keywords: Exchange Rate; Central Bank; Current Account; Real Exchange Rate; Current Account Deficit (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-26871-9_8

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DOI: 10.1007/978-1-349-26871-9_8

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