Mexico NAFTA And The Peso Crisis

While NAFTA did advance Mexico’s role in the global economy and helped get them eventually get them out of the peso crisis, it did spark the Zapatistas rebellion on the scale that it was causing them to lose investors and thus create the economic crash on the scale that it happened. For Mexico NAFTA was really meant to be the final push that would thrust them into the “first world” global economy and increase their foreign investment along with exports. NAFTA, for Salinas, became so important because he could finally be the president that could give Mexico the macroeconomic success it deserved. This goal of maintaining a good reputation economically and having NAFTA go through his the reason why Salinas fought the peso crisis so hard. If Mexico

After many investors pulled their money because of Mexico’s political and social catastrophes the government was left with a harsh pegging plan that they could not sustain and the money they were using would soon run out. The government was relying on the bonds they were given from the deal they had made wit the U.S, in regard to their trade deficit, and these bonds were soon expiring and they were soon hitting the limit of their deal so time was running out. Eventually Mexico had only 7 billion dollars left in reserves and they had to loosen their pegging policy on December 20, announcing that the peso had 15 percent devaluation. This caused many to exchange their pesos draining the market and by the next day Mexico had announced that their valuation would be set by the market instead of a fixed rate. Within 10 days the peso had devalued close to 100% and this was is what is formally known as the peso crisis. As this happened Mexico had to pay back their bonds in dollar, which had suddenly, grown much stronger than imagined causing the country to loose even more money. This final crash of the currency is what we know today as the peso crash and its effects on Mexico were

While the crash did create a relatively big recession in 1995 the effects of the peso crisis were generally short lived. Mexico made a pretty quick recovery by the United States bailing them out as they had recently become big trade partners within two years of the crash, but what was left behind were the lessons learned from the government and the people. This crash highlighted the problems in the economic system in Mexico especially relating to class, which became a conversation after the crash exposed this. Jonathan Heath sheds light to this when he explains, “Nevertheless, Mexico must still solve its much deeper problems of an extremely inequitable income distribution and immense poverty belts, while improving its judicial system, reinforcing the rule of law and recovering its banking system.” Heath shows how while Mexico may have recovered macro economically but they still continue to have problems. Undoubtedly this was one of the most notable economic crashes during its