El efecto tequila

What was the tequila effect and how did it impact Mexico?

The tequila effect was a local financial crisis that affected Mexico in the mid-1990s. This financial crisis, also known as the "December mistake", arose due to the devaluation of the Mexican peso against the US dollar, together with the lack of international reserves. This phenomenon resulted in a radical increase (almost 300%) in the value of the dollar, generating a series of negative economic consequences in the country. High inflation rates, shortage of capital in banks, and high interest rates caused a crisis in commercial activity. Thousands of companies were forced to cut personnel or even close their doors.

To address this situation, Mexico received a bailout package from the United States and other international organizations, which included a significant monetary injection through the International Monetary Fund (IMF). This bailout was crucial to try to stabilize the price of the dollar and thus avoid a domino effect that could impact other global economies.

How was globalization related to the impact of the tequila effect?

Thanks to globalization and free trade agreements, the tequila effect not only affected Mexico, but also spread to other economies with trade links. This phenomenon highlighted the vulnerability of global markets to localized economic crises.

1. External debt: The need for external financing to contain the crisis raised Latin America's external debt from US$34 billion to US$521 billion.

2. Impact on other countries: Venezuela, Brazil, Chile and Argentina, among others, also suffered repercussions. Argentina, for example, experienced an increase in taxes and a reduction in foreign deposits, which severely affected its liquidity and led to the privatization of multiple sectors.

What were the measures adopted by Argentina?

Argentina was one of the most severely affected countries, which led it to implement austerity policies to manage its finances. Measures included:

• Tax increases: This translated into a higher tax burden for citizens and companies.
• Reduction of foreign deposits: The confidence of international investors weakened, reducing the flow of capital.
• Privatization of sectors: The need to improve liquidity in the Central Bank led to privatization as a strategy to generate income.

The tequila effect crisis highlighted the need for more robust and adaptive economic policies that could anticipate and mitigate the impacts of international market fluctuations. For those interested in delving deeper into the consequences and key players during this turbulent period, there are a variety of resources available that offer detailed insights into the tequila effect and its economic implications.