Tequila Effect
Informal name given to the impact of the 1994 Mexican economic crisis on the South American economy. The crisis occurred because of a sudden devaluation in the Mexican peso, which then caused other currencies in the region (the Southern Cone and Brazil) to decline. The falling peso was propped up by a US$50-billion loan granted by then-U.S. president Bill Clinton.
Also referred to as the "Mexican Shock". Investopedia Says:
Immediately after the Mexican peso was devalued in the early days of the presidency of Ernesto Zedillo, South American countries suffered rapid currency depreciation. It was a known fact that the peso was overvalued, but the extent of Mexico's economic vulnerability was not well known. Since governments and businesses in the area had high levels of U.S. dollar-denominated debt, the devaluation meant that it would be increasingly difficult to pay back the debts. Related Terms:
Currency Convertibility
Currency Risk
Devaluation
Floating Exchange Rate
Foreign Currency Effects
Globalization
MXP
North American Free Trade Agreement - NAFTA |