351. International Investor Influence in the 1994-1995 Mexican Peso Crisis
- Author:
- Charles W. Parker III
- Publication Date:
- 04-2005
- Content Type:
- Working Paper
- Institution:
- Centro de Investigación y Docencia Económicas
- Abstract:
- This essay provides a detailed overview, at a market- and firm- level, of the involvement and influence international portfolio investors had in the development and outcomes of the Mexico Peso Crisis of 1994-1995. It address two problems with the literature that is critical of the role of international investors during the crisis; the lack of specific data of market activity by firms that were engaged in Mexico during the volatile period before and after the December 1994 devaluation, and details on private creditor interactions with government officials in key episodes of the crisis. Through a review of the literature, industry data, and confidential interviews with key governmental and private actors, this essay concludes that there was sizable concentration of international investment firms engaged in Mexico, but claims they instigated or exacerbated the crisis are overblown; global funds rather than emerging market funds were a more likely culprit in Mexican market volatility and only after the devaluation; the role of investment banks as participants has been underestimated and is important in understanding collective action problems in finding a solution to the crisis; and a lack of information and mutual confidence, as well as policy overdependence on foreign capital flows, rather than purported “structural power,” were far more important factors in determining the onset and outcomes of the crisis.
- Topic:
- Conflict Resolution, Economics, and Government
- Political Geography:
- Central America and Mexico