In the early 90s Mexico was seen as a top growing emerging market, the country went through several economic reforms, which includes privatization of industries and embracing foreign investments
In 1994 North America Free trade agreement was signed this agreement was to Foster the economic relationship between Mexico and the United States of America and due to this billions in capital flowed into the country.
Mexico also operated a fixed exchange rate pegging the peso to the United States dollar the central bank regularly intervenes in the market if need be with the foreign reserves available.
Lots of political instability unfolded in 1994 and this led to the assassination of a presidential candidate Luis Donaldo, due to this foreign investors began to pull out capital.
In order for Mexico to maintain its peso peg to the dollar it burned through its reserves and by December they had just $6 billion barely enough to cover one month imports. This signal the central bank is losing its ability to defend its currency. And paying of foreign debts becomes more uncertain.
On December the new administration devalued it's currency by 15% to relieve pressure on the reserves but it back fires as investors lost confidence in the economy and the peso depreciated by 50% in weeks.
The consequences of this was inflation spike and the economy heading to recession until the United States and the IMF stepped in and offered a $50 billion bailout package to help stimulate the economy.
