1994 MEXICAN PESO CRISIS (Tequila Crisis)

Syeda Aniqa AdibaRH-14

Akib Moin ArkaZR-19

Arifur Reza ChowdhuryZR-23

Md. Alvi RahmanZR-52

Johan AhmedZR-79

GROUP 3

BACKGROUND

CAUSES

IMPACT TAKEAWAYS

ASSISTANCE

OUTLINE

BACKGROUND

1

2

3

5

6

7

4 8

9

CAUSES

INCREASE IN US INTEREST

RATES

MYRIADS OF POLITICAL

EVENTS

CURRENT ACCOUNT DEFICIT

PEG EXCHANGE

RATE SYSTEM

ASSASINATION OF LUIS

SHARP RISE IN INTEREST

RATES

OTHER POLITICAL SHOCKS

IMPACTS

MACRO-ECONOMIC IMPACTS

7.4%

50% 52%

6.2% 25-35%

Peso Depreciation

GDP Decline

in 1995.

Hyperinflation

In 1995.

Real Wages Fell

Unemployment

In 1995

Prices Increase in 1995

35%

Severe Recession Decreased in Gross Income Per Capita

IMPACTS ON HOUSEHOLD

21

3 4 Increased Remittances

To Mexico

Incomes Plummeted

Average Consumption Declined

Decreased SavingsSpent Less On Healthcare

Hike In Mortality Rates

In 1996.

IMPACTS ON INVESTMENT SCENARIO

1 2 3 4 5 6 7

Financial Markets’ Perception Regarding Mexico Changed

Investors Shifting to

Foreign Investments

Few Investors were Interested

in Purchasing New Debt

Foreign Investors

Withdrew Capital

Mutual Funds Began Liquidating

Strong Ripple Effects in Financial

Markets of Asia & Latin America

Central Bank Raised

Interest Rates

IMPACTS ON BANKING SECTOR

Upward Market Pressure on

Interest Rates

Downward Market Pressure

on Peso

Strong Rise of Non-Performing

Loan Ratio

Thousands of Mortgages went

Default

Liquidity Problems Occurred

Govt. Faced Imminent

Sovereign Default

Unable to Honor Foreign Currency

Liabilities

CB Purchased Dollar with

Weakened Pesos

BENEFITSOF

BAILOUT PACKAGE

IMF$17.8 Billion

USA$20 Billion

BIS$10 Billion

CONSORTIUM of LATIN AMERICA NATIONS

$1 Billion

CANADACAD $1 Billion

USA Coordinated the $50 Billion Bailout Package in January, 1995

Improving Market Liquidity

Restructuring of Public Debt

Alleviate Growing Risk Premium And Boost Investor’s Confidence

ASSISTANCE

TAKEAWAYS

THANK YOU !