Abstract
The financial problems faced by Mexico since late December 1994 are the result of a balance of payments crisis which developed earlier during the year when a number of economic and political developments came together to disrupt its financing plans. A combination of events — an increase in US interest rates, political ferment and presidential elections in Mexico, plus capital flight from Mexico which was prompted, in turn, by lax monetary policy during the last weeks of the Salinas administration — all helped contribute to, and culminated in, a collapse of the peso at the end of 1994. As a result, the incoming administration of President Ernesto Zedillo found itself in the position of having to devalue the peso, a move that sparked severe economic repercussions, including a crisis of confidence that spread beyond Mexico to affect other emerging markets as well.
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