PESO CRISIS

The Peso Crisis is the term generally given to the devaluation of the Mexican Peso in December 1994, just a few short weeks after Ernesto Zedillo had taken over the presidency. Economic instability following the election of a new president is nothing unusual in Mexican history; in fact, a tendency to stimulate the economy just prior to an election had often caused financial hiccups once the election was over.

But the 1994 crisis was more than a hiccup. At first the government devalued the peso by about 15 percent. But then it let the peso float to find its own worth; the result was that the peso lost nearly half its value. Inflation soared, and a recession followed. For banks it was a particularly hard time.

But it was also, as some reporters for Fortune Magazine noted, a time of considerable opportunity. As they wrote in a February 6, 1995, article titled “Time to Buy Mexico?”: “Mexico has been in much worse shape before — in 1976 and 1982, for example — and recovered. Even many who have recently rushed to get out the door know that Mexico will ultimately rebound. They know, too, that the best business and investment opportunities are often found in the midst of panicked selling.”

Previous financial downturns in Mexico had been linked to a wrecked economy. But this time around, the Fortune writers pointed out, the fundamentals of the Mexican economy were strong. Among those who apparently agreed with this judgment were the executives at Scotiabank, who increased their ownership percentage in Banco Inverlat. As financial decisions go, it was a good one. Before long, the Peso Crisis had passed, and the core strength of Mexico’s economy asserted itself. Banco Inverlat, renamed Scotiabank Inverlat, rebounded and grew along with Mexico itself, returning a substantial profit to its new owners.

For more on the Peso Crisis, see:

"The Mexican Peso Crisis," by Joseph A. Whitt Jr., Federal Reserve Bank of Atlanta

"Time to Buy Mexico?," by Lee Smith, Fortune Magazine, February 6, 1995

Mexican Peso Crisis, Wikepedia