Rolf Englund IntCom internetional
Mexico's 1994 Financial Crisis
The First Crisis of the Twenty-first Century
I told the President that the Mexican government faced an imminent threat of default and that, in the hope of preventing it, we were recommending that he support a massive, potentially unpopular, and risky intervention: providing billions of dollars to the Mexican government to avoid a collapse in its currency and economy.
Then I asked Larry to explain the situation in more detail. It took him ten minutes to spell out our essential analysis and recommendation, which we’d finished formulating in a meeting with Fed chairman Alan Greenspan hours earlier. If our government didn’t step in to help, and help quickly, the immediate and long-term consequences for Mexico could be severe. But the real reason for acting was that critical American interests were at stake.
RE: Larry is, of course, Lawrence Summers
Time magazine famously named Mr. Greenspan, Robert Rubin and Lawrence Summers “The Committee to Save the World” — the “Three Marketeers” who “prevented a global meltdown.”
Causes of the economic crisis of 1994 - The neutrality of this section is disputed.
The 1994 economic crisis in Mexico, widely known as the Mexican peso crisis, was triggered by the sudden devaluation of the Mexican peso in the early days of the presidency of Ernesto Zedillo.
THE ORIGIN OF MEXICO'S 1994 FINANCIAL CRISIS
5. Moral hazard was increased by the unlimited backing of bank liabilities.
Even though the virtually fixed exchange rate exhibited its virtues by steadily stabilizing prices,
I would suggest that if one is seeking to draw lessons from the last 15 years of monetary experience, here is one that is very powerful: fixed exchange rates with heavy intervention have enormous capacity to create an illusory sense of stability that could be shattered very quickly.
That is the lesson of Britain in 1992, of Mexico in 1994, of emerging Asia in 1997, of Russia in 1998, and of Brazil in 1998.
Larry Summers: The US Current Account Deficit and the Global Economy, Per Jacobsson Lecture, IMF, October 3 2004