The Economic Impact of the Mexican Peso Crisis

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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 th... ... middle of paper ... ...risis shows the importance of making policy changes with effective political handling in order to prevent such crisis from happening again. Works Cited Agenor, Pierre-Richard, and Paul Masson. “Credibility, Reputation and the Mexican Peso Crisis”. Journal of Money, Credit and Banking, Vol. 31, No. 1 (1999): 70-84. Bhagwati, Jagdish. “The capital myth: The difference between trade in widgets and dollars”. Foreign Affairs; Vol. 77, No. 3 (1998): 7-12. Calvo, Guillermo, and Enrique Mendoza. “Petty Crime and the Cruel Punishment: Lessons from the Mexican Debacle”. The American Economic Review, Vol. 86, No. 2 (1996): 170-175. Cooney, Paul. “The Mexican Crisis and the Maquiladora Boom”. Latin American Perspectives, Vol. 28, No. 3 (2001): 55-83. Mathur, Ike, et al. “Contagion Effects from the 1994 Mexican Peso Crisis”. The Financial Review, Vol. 37 (2002): 17-34.

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