Finance report

PESO DEVOLUTAION (A case study

I N D E X

S .NO . ITEM PAGE NO

1 . INTRODUCTION 3

2 . IMPACT OF PESO DEVALUATON 3

3 . PRIOR TO PESO DEVALUATION AND CAUSES 4

4 . MAIN CAUSES 4

5 . OTHER CAUSES 5

6 . BALANCE OF PAYMENTS 6

7 . NAFTA 7

8 . POLITICS FOR 1994 8

9 . LESSONS FROM MEXICO ISSUE 8

10 . FINDINGS WITH TRENDS 10

11 . REFERENCE 13 INTRODUCTION

The 1994-year is Mexico 's bad year . Of course it starts with acceptance of NAFTA in

the year beginning with United States and Canada and ends with dark Christmas with peso devaluation . During the year there are many political problems like Chiapas rebellion , assignations of political leaders . There was such situation the Mexico attacked with the crisis during 1982 and it got recovered by 7 years whereas during 1994 peso devaluation , it takes for 7 months only to get recovery . During December 19 , 1994 , the exchange rate is 3 .50 pesos per dollar . The consumer demand for goods collapsed . The Mexican interest rate on loans dramatically increased creating a shock in the banking system . Some businesses closed due to increase of market share . The exports increased with high exchange rate . The crisis brought many threats . The peso shock reduced the sales , the public expenditure and leaded the risk to invest in Mexico . By such results , the domestic firms shifted to exports instead of selling in national market

IMPACT OF PESO DEVALUATON

Due to Peso devaluation , the impact on economic crisis experienced the following

More than 10 percent of businesses closed during first two months of crisis

More than 250 ,000 workers lost their jobs during the period

Price hikes in some basic necessities like electricity

Bank 's basic lending rate increased from 10 to 50 percent

Credit card rates more than 100 percent

Inflation expected more than 40 in near future

Increase of unemployment rapidly

PRIOR TO PESO DEVALUATION AND CAUSES

During 1980 several countries in Latin America started to significant economic policy reforms , which aimed to make their economies more competitive internationally besides to raise the standards of living Mexico was one of the first countries . During the regime of Salin between 1988-94 , the federal budget was turned from deficit to surplus The import tariffs were cut dramatically and inflation was lowered for more than 150 in 1987 , which was only single digit in 1994 . One thing we should remember , that besides , the Mexico joined with NAFTA during 1994 . Implementation of NAFTA started from January 1 , 1994 and to be ended during 2008 . Removal barriers to trade and investment among United States , Canada and Mexico . Besides Mexico and Canada entered separated on market access for agricultural products such dairy , poultry , eggs and sugar

The political as well as NAFTA commitment , Mexico attracted large amounts of private foreign capital . But end of 1993 to March 1994 , the Dollar reserves fell rapidly . It was due to the foreign investors begun pulling their funds out of Mexico . Such withdrawal of foreign investment caused by...