The 1994 Mexican Peso crisis occurred when the Mexican peso devalued by 14% against the US dollar. This was caused by Mexico's lax monetary policy, overvalued exchange rate, large current account deficit of 8% GDP, high proportion of short-term government debt held by non-residents, and political issues. The peso devaluation spread to other Latin American and Asian markets as fund managers liquidated investments due to fears of losses. Mexico received a $50 billion financial bailout package from the US, IMF, and other countries to restore stability and regain investor confidence. The crisis showed the need for multinational safety nets and that excessive reliance on foreign capital to finance development can have downsides.

2. In 1994 Mexican Peso crisis occur due to
devaluation of Mexican peso against us dollar by
14 %.
US Dollar v/s MEICAN peso exchange rate (nov/94 - jan/95)

3. Cause of the crises :
• lax monetary policy pursued in 1994
• over-valued exchange rate of peso
• the large scale of the current account deficit,
which had reached almost 8% of GDP in 1993
and 1994
• high proportion of government debt paper
was so short-term &high portion of this in non-
residents
• Political causes

4. Why did the devaluation of the
Mexican peso turn into a financial
crisis?

5. Impacts of crisis :
• Peso crisis rapidly spill over to Latin American
and Asian financial markets
• Most of fund manger liquidated funds due to
fear of loosing investments
• Foreign reserves fall down drastically
• in 1995 alone, prices rose 35 %and output fell
6.2 %
• Mexico’s per capita GDP fell by 5 per cent
during the crisis

6. Bail out from crisis :
financial packages of
• US$ 50 billion composed of loans from the U.S.
(US$20 billion),
• the IMF ($17.8 billion)
• the Bank of International Settlements (US$10
billion)
• Canada (1 billion of Canadian dollars)
• Group of Latin American countries (1 billion
dollars)

7. Goals of Assistance:
• Restore financial stability
• Strengthen public finances and the banking
sector
• Regain investor confidence
• Reinforce the groundwork for long-term
sustainable growth

8. Lessons from peso crisis :
• It is essential to have multi national safety
net to safe guard the world financial system
from these type of crisis .
• Mexico excessively depended on the foreign
capital to finance its economic development
this policy has its own undesirable effects

9. THANK YOU