Case 260 - Mexico Confronts the Peso Crisis

Joseph, James W.

This case study focuses on the collapse of the Mexican peso on global exchanges in late 1994 and early 1995, and the response by Mexico, the United States, the International Monetary Fund, and select other actors. The steep decline in the currency’s value demonstrated that sound economic fundamentals in a newly industrializing country are often not enough to counteract a loss of confidence (justified or not) in that state’s economy. The multilateral effort to support the peso, led by the U.S., further shows that decision-making during economic crises is at least as difficult and time-consuming as during political and military crises. The case study would be useful in several different contexts: classes on international relations and political economy; courses on U.S. foreign policy, to demonstrate the competing domestic and foreign policy agendas facing American presidents; and classes covering politics in developing countries.