Mexican Meltdown: States, Markets, and post-NAFTA Financial Turmoil

Vinod K. Aggarwal and Maxwell Cameron

Third World Quarterly, 1996

The devaluation of the Mexican peso in December 1994 triggered a financial panic that required massive intervention by the United States government and the International Monetary Fund in an effort to prevent a full-scale financial collapse. This article examines the impact, causes, and policy implications of the peso crisis, as well as the reasons for the U.S.-led bailout package. It then considers the crisis in the light of three classical schools of international political economy: liberalism, mercantilism, and structuralism. The conclusions call attention to the potentially destabilising effects of deregulated financial markets, especially for countries that are heavily reliant on foreign savings, and suggests that existing institutions at the international level are inadequate for managing the problem.

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