Mexico’s 1994 peso crisis and its aftermath Available to Purchase

Mexico’s 1994 peso devaluation and ensuing crisis surprised the markets and caught international markets and many policy makers off‐guard. Some of the contributing factors were due to structural deficiencies and institutional rigidities, while others dealt with public policy issues. In addition, Mexico’s membership to the North American Free Trade Agreement (NAFTA), and ensuing rapid trade liberalization and deregulation of capital market and banking, were paramount to the peso crisis. Financial deregulation in Mexico, as in Korea and other crisis countries of Asia, took place before adequate, prudential regulation and supervision were in place. The result was excessive build‐up of bank credits driven by moral hazard. This paper deals with various factors leading to the peso crisis and presents the logical sequence of the unfolding of the events by analyzing the structural and institutional factors. Also, major developments in the post‐crisis period are discussed.