...At the end of 1994 Mexico was hit by one of the worst economic crisis in its history, which is called "The Peso crisis" or "Tequila Crisis" and is considered one of the first ones that had global effects. After only three weeks in charge, the newly elected President Ernesto Zedillo Ponce de León was forced to lift the upper band of the exchange rate by 15%, devaluating de facto the Mexican currency. In fact, the Central Bank of Mexico had insufficient international reserves to keep the fixed exchange rate with the US dollar. This triggered panic among Mexicans, who started buying dollars because they were fearing that further and more serious devaluations would occur. This contributed to exacerbate the situation even more. The crisis was very harsh, but thanks to a US$50b rescue package from USA, the IMF, the Bank for International Settlements and private commercial banks, Mexico was able to roll over its short term dollar denominated debt and did not default on its short term securities. As it results from the following data, Mexico managed to recover very quickly: * The GDP decreased by 5.8% in 1995, but in 1996 and in 1997 it grew by 5.9% and 7.0% respectively * Household final consumption expenditure contracted by 11.5% in 1995, but in 1997 it went back again to 1994 level * Foreign direct investments decreased by 13% in 1995 and by 4% in 1996, but they grew by 40% in 1997 to a level 16% higher than in 1994 * Unemployment rate grew by almost 3 percentage...
Words: 4002 - Pages: 17
...Economics Final Graded Project The foreign currency chosen in the comparison against the U.S. Dollar is Mexican Peso (MXN). Introduction Mexico maintained a fixed exchange system of Peso to Dollar, since 1954. Mexico continued the use of such system even after collapse of Bretton Woods system in 1971 and world price shock in 1973. But due to escalating accumulated foreign debt, high inflation, large capital flight, and consequences of import substitution policy, the Peso has lost its value in 1976. After exploring with two rates – preferential rate and free market rate, Mexico established a floating rate policy in 1994. (Source: cuhk.edu.hk, 2013) In this new system, exchange rate is dictated by forces of demand and supply. The New system allows for little or no government involvement in fixing exchange rate. The exchange rate is impacted by macroeconomic aspects such as inflation, interest rate, GDP growth rate, budget deficit, general business environment, political stability etc. Mexico is one of the rapidly developing economies who has been able to keep inflation rates low. In 2012, average rate of inflation was just 3.6%, which is low as compared to other emerging markets. Real GDP growth in 2012 was 4%. Towards the end of 2012, Mexico had foreign currency and hold reserve of $163.6 billion, which was 18th highest in world. (CIA World Factbook, 2013). Foreign investment has played an important part on Mexico’s growing economy. The study of MXN against USD for a...
Words: 1700 - Pages: 7
...Mexico: The Tequila Crisis 1994-1995 What Caused Mexico’s peso crisis of December 1994? Mexico, the Latin American country that survived the huge debt crisis in the 1980’s found itself amidst one of the most viral economic crises that it had ever encountered in its history. The crisis took place under President Zedillo; however, the causes of the crisis are usually linked to Carlos Salinas de Gortari and his outgoing administration. Gortari’s government currency policy put an unbelievable strain on the nation’s finances. In the early 1990’s, Mexico seemed to have established itself as a reformer and was establishing economic development. Domestic deregulation and privatization combined with liberalization of trade and investment led to rapid growth and massive inflow of direct and foreign investments. By May 1994 Mexico falsely believed that there was prosperity in the nation and that it in fact could be a first world nation. The Banks were just lending credit without conducting proper checks or having any accountability and it was widely known that the currency was overvalued and there was economic mismanagement taking place. The situation was not helped and led to a collapse in confidence by several political shocks that took place like the uprising in the South and the assassination of the leading presidential candidate (Gil-Diaz, the CATO journal vol.17 no 3). The government’s corruption caused the increased account deficit fostered by consumer binding and...
Words: 872 - Pages: 4
...General History of Mexico Mexico foundation starts in the year 900 B.C. with the migration of the Mexica from Aztlan tribe, towards the center of Mexico. When the Mexica tribe arrived, where now stands Mexico City, they found an eagle holding a serpent between its claws on a cactus. The Mexica thought this was a message from their god Huitzilopochtli (sun god) telling them that there was their sacred land. Pre-Hispanic Cultures Before the Mexica arrived to the center of Mexico and Central America, many pre-Hispanic cultures were developed, sharing their traditions and culture. When we talk about Mesoamerica, it refers to cultures that existed before the European conquest in the territories that are now Mexico, Guatemala, Belize, Honduras, El Salvador, Nicaragua and Costa Rica. In Mesoamerica grew and faded many cultures, some of the most important were the Olmec, Zapotec, Maya and Aztec. These cultures had their own art, architecture and religion, most of these cultures were conquered by other cultures and therefore there was a mixture developing and forming a new and enriched culture. These cultures lived on the Pre-classic, Classic and Post classic which is division in periods of the pre-Hispanic period, some of these cultures lived for over a period, others just lived through one. The Conquest of Mexico and the Creation of New Spain In 1492 Christopher Columbus arrived in Cuba and thought that they were in the Indies (today India). Almost thirty years later...
Words: 5491 - Pages: 22
...D December 1, 2012 International Crisis in Lending Lessons to be learned Group V Samantha Jeffrey Gabriella Stankovic Na-taisha Williams The debt crisis played a huge role in international lending. This report will discuss how economic crisis can result from many different factors such as changes in government policies which result in failure, and the cost of bank bailouts. Least developing countries also learned a lesson about how interest rates and low exports and imports played a major role in the financial crisis. These countries also tried to stabile their country's currency by fixing its exchange rate to that of the United States, which also resulted in failure. European countries also integrated their currency to Euro that caused a major crisis in lending. All are major factors that contributed to a crisis in international lending. Countries need to know what they are doing wrong before they can solve their problems. The historical events discuss will help serve as answer of how it can be resolved. Sovereign risk is the risk of lending money to the government with the risk of not being able to repay the obligation. There is always a risk in lending but the previous debt crisis and the crisis that is occurring in Europe plays a role in whether financial institutes want to lend to governments. The sovereign risk is important in international lending because many countries borrow money...
Words: 2761 - Pages: 12
...happiness and to strive for a better life has been indisputably the gap among developed and undeveloped countries for decades. However, hard work does not seem to be the key factor to achieve happiness and/or a better life. Then, what does? During the beginning of the 1980’s decade, Mexico among other Latin-American countries started to adopt Structural Adjustment Programs (SAP) sponsored by the International Monetary Fund (IMF) and the World Bank (WB) in response to the neo-liberal ideology that was starting to spread around the world as the avenue for global well-being. The World Health Organization states that Structural Adjustment Programs: “were economic policies for developing countries that have been promoted by the WB and IMF since the early 1980s by the provision of loans conditional on the adoption of such policies.” The economic policies promoted by the IMF and WB were meant to encourage the structural adjustment of an economy by, for example, removing excess government controls and promoting market competition as part of the neo-liberal agenda. As a result, the agricultural economic sector in Mexico and Latin-America was the most affected after the implementation of the SAP’s economic policies. This lead to a massive migration of workers from the countryside from different...
Words: 2135 - Pages: 9
...Mexican History Term Paper The Drug War: Failed Democratization and Market-Oriented Economics Cause Mexican Insecurity Once a model for Latin American development, Mexico is now home to an epidemic of drug related violence. The state is apparently powerless to stop organized crime, despite increasing military presence in criminal hotspots along the U.S-Mexican border. Since January 2007, more than 28,000 Mexicans died in drug violence. This is a cruel twist for a nation which, during the oil-driven Mexican Miracle of the 1970s, was poised to join the first world of stable industrialized states. Under the heavy-handed guidance of the Partido Revolutionario Institutional, Mexico seemed destined to remain a prosperous authoritarian regime with a thin veneer of democratic legitimacy. However, untested economic policies swept through the country as they did through the much of the world in the 1980s with the help of the "Washington consensus." With the removal of social security nets during an extended period of economic upheaval, Mexico's ruling party was replaced in a wave of popular discontent. The new leadership, with the institutions of an authoritarian regime, did little to relieve the nation of widespread poverty. As a result, the impoverished were unable to either escape crushing deprivation legally or mobilize to replace the government without fear of reprisal. Insurgency, in the familiar form of guerrilla movements and the novel form of increasingly powerful drug gangs...
Words: 4156 - Pages: 17
...The Return of Depression Economics and the Crisis of 2008, a New York Times’ bestseller written by Paul Krugman provides key insights into the history of economic crises. Paul Krugman was actually a recipient of the Nobel Prize for Economics in 2008; he was honored for his work in economic geography and identifying international trade patterns. Krugman also served under President Ronald Reagan’s Council of Economic Advisors for a year as his chief staffer for international economics. His research into economics post World War II explicated the desire of consumers for variety and choice facilitated a countries ability to attain the scale required for profitable trade. Paul Krugman an exceptionally decorated Economist and writer publishing more...
Words: 1985 - Pages: 8
... Inflation behavior in financial crisis. | | | MAY 4, 2011 INDEX INTRODUCTION | 3 | TYPES OF INFLATION | 4 | * MODERATE INFLATION | 4 | * RUNAWAY INFLATION | 4 | * HYPERINFLATION | 4 | INFLATION CAUSES | 4 | * DEMAND PULL INFLATION | 5 | * COST PUSH INFLATION | 5 | * BUILD-IN INFLATION | 5 | * FORMULA | 5 | INFLATION EFFECTS | 6 | * EXPECTED INFLATION | 6 | * UNEXPECTED INFLATION | 6 | HOW TO STOP INFLATION? | 7 | INFLATION IN DIFFERENT COUNTRIES | 8 | * GERMANY | 8 | * FRANCE | 9 | * MEXICO | 10 | * USA | 11 | * GREECE | 12 | CONCLUSION | 13 | REFERENCES | 14 | INTRODUCTION The main objective of this paper is to explain the behavior and the effects of the inflation from the financial crisis in several countries talking about inflation and the causes and effects and later comparing different significant countries. The economic crisis from 2008 to 2011 is known as the world economic crisis that began that year, originates in the United States. Among the main factors causing the crisis would be high raw material prices, the overvaluation of the products, a global food and energy crisis, high world inflation and global threat of a worldwide recession, also a credit, and trust and mortgage crises on the markets. The root cause of all crises according to Austrian business cycle theory is an artificial expansion of credit. The origin of the crisis comes from the strong expansion on...
Words: 3236 - Pages: 13
...Chapter 6 “The Crisis of the Porfirian Political Economy” In Morelos • Sugar production dropped drastically from 52,230,155 kilo (1908-1909) to 48,531,600 kilos • Mexican producers were facing an American tariff and new growers in Cuba • Tried to compensate the loss by selling to Mexico city and “domestic consumptions” • Event in Morelos reflected the Mexican agriculture at the time period • There was famine going on in the center and northern parts of the country. Corn shipments were being delivered from other countries cause of the shortage. Some 200,000 tons was imported between 1907-1910 • 1908-1909 there was a drought and that is why there was a shortage of corn. It was mostly due to lack of proper irrigation • The governments wasn’t willing to fund enough money for proper irrigation and also because of not having the sufficient farming tools. This lead to the inevitable down fall of Mexican agriculture • Diaz government had a plan for irrigation but because of the peasant displacement in favor of cash crop, which they farmed on their land, lead to a shortage of crops. Irrigation and the favor cash crop with the drought and crops that were infested in the south and center lead to the famine. • Because of this drought of crops domestic companies started coming into Mexico. This didn’t make Mexican society happy • In Veracruz, foreigners held 95 percent of the city’s private property. Cost of living doubles between 1901-1911 • There...
Words: 775 - Pages: 4
...20 years of NAFTA – trends in trade and the economic effects «20 years of NAFTA – trends in trade and the economic effects» by Paweł Kowalik Source: Economics of the 21st Century (Ekonomia XXI Wieku), issue: 4 (4) / 2014, pages: 4663, on www.ceeol.com. The following ad supports maintaining our C.E.E.O.L. service Access via CEEOL NL Germany EKONOMIA XXI WIEKU ECONOMICS OF THE 21ST CENTURY 4(4) • 2014 ISSN 2353-8929 Paweł Kowalik Wrocław University of Economics e-mail: pawel.kowalik@ue.wroc.pl 20 YEARS OF NAFTA – TRENDS IN TRADE AND THE ECONOMIC EFFECTS Summary: This year marks the twentieth anniversary of the largest economic grouping in history, both in terms of surface area and the generated GDP – the North American Free Trade Agreement – NAFTA. The grouping was established on 1 January 1994, with the objective of gradually doing away with the existing tariff and non-tariff barriers to trade between the United States, Canada, and Mexico. Its objectives and effects have long been under careful examination and subject to many analyses. Prognoses varied, from potentially significant benefits to anticipated losses, particularly for US economy. The paper is an attempt at presenting the twenty years of NAFTA operation, predominantly from the viewpoint of its impact on the trilateral trade exchange, unemployment, inflation, and the Gross Domestic Product (GDP) of its member states. The analyses suggest that NAFTA has proved its effectiveness...
Words: 9683 - Pages: 39
... 7 The International Monetary Fund 9 Implication for Business 11 Malaysia 13 Preventing and Managing Future Crises 14 Conclusion 16 References 18 Introduction Asian Contagion In March 1997 Asia faced a serious crisis in financial sector. This concern was started from Thailand and has spread to a lot of countries in Asia. Obviously it affected to those countries in economy situation such as currency value. Also called the "Asian Contagion", this was a series of currency devaluations and other events that spread through many Asian markets beginning in the summer of 1997. The currency markets first failed in Thailand as the result of the government's decision to no longer peg the local currency to the U.S. dollar. Currency declines spread rapidly throughout South Asia, in turn causing stock market declines, reduced import revenues and even government...
Words: 6492 - Pages: 26
...Bern University of Applied Sciences Business and Administration Drugwar of Mexico The Mexican drugwar hampers the development of the national economy Final paper for the module "Academic Methods of Working" submitted as part of the degree programme Semester Class Authors Bachelor of science Business Administration 2 2i Ardian Beqiri Kevin Leiser Thomas Zbinden 22th May 2013 Benjamin Spycher Benjamin Spycher Date of submission Supervision Responsible for the module Page 2 Contents 1. 2. Introduction .............................................................................................................. 3 Source basis ............................................................................................................. 3 2.1. Research method .................................................................................................. 3 2.2. Documentation of research .................................................................................... 3 2.3. Discussion of the source material .......................................................................... 4 2.4. Summaries ............................................................................................................ 5 2.4.1. 2.4.2. 2.4.3. The Mexican Economy After the Global Financial Crisis ............................................. 5 Inside Mexico’s Drug War ............................................................................................ 5 Drug War...
Words: 3600 - Pages: 15
...for capital invests so that countries such as Mexico could improve economically. In this section, we will look into the impacts of NAFTA on the lives of Mexicans with focus on the economic lives. We also determine the attainment of the objectives of NAFTA NAFTA did not bear any resemblance to the forecasts and the expectations of the agreement. The agreement was not a solution to the unemployment challenges in mexico.it was not helpful in raise the average wages of the Mexicans or reducing the flow of Mexican immigrants to the US. It was however useful in...
Words: 887 - Pages: 4
...financial capital and financial transfers. The balance of payment record is a way to allow countries to recognize potential business partners for trade and to evaluate a country’s performance in the global economic competition. . In this mini-case we will look into 4 key aspects such as Mexico’s key economic indicators, the causes of the country’s balance of payment problems, policies in which Mexico could have implemented in order to avoid the problems and the lessons in which developing countries can learn from this incident. Through these 4 key aspects, the reader would be able to gain a better understanding about Balance of Payments concepts. Trend in Mexico’s key economic indicators: balance of payments, exchange rate, and foreign reserve holdings. Yr | Balance of Trade | Current Account | Direct Foreign Investment | Portfolio Investment | Gross International Reserves | Total External Debt | Public Sector External Debt | Interest Payments | 1994 | -18.5 | -29.7 | 6.1 | 8.2 | 6.1 | 142.2 | 85.4 | 11.8 | 1995 | 7.1 | -1.6 | 15.7 | -9.7 | 15.7 | 169.9 | 100.9 | 13.6 | Mexico’s current account deficit was continuously increased from $5 billion to $25 billion during the period 1988 through mid-1994. In late 1994, it became $30 billion. Prior to 1994, Mexico experienced sharp rising trade deficits starting from 1989 and caused the current account to sink into deficit, ballooning from a deficit of US$4 billion in 1989 to US$29 billion in 1994. In the period...
Words: 1873 - Pages: 8
