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The Tequila Crisis

One of the first surprise collapses of a currency in modern foreign exchange history occurred in 1994 in Mexico. At the beginning of that year, no one predicted or expected what was about to happen. After all, the North American Free Trade Agreement (NAFTA) had passed, uniting Mexico, the U.S., and Canada in a free-trade block. Trade was flowing, and people expected the benefits of free trade, because everyone had assumed it would be enormous.

Moreover, after decades of walling itself against the “Yankee colossus,” the Mexican government was doing economically, as one academic called it, right. The government budget was balanced, companies were being privatized, and tariffs were being lowered. The IMF gave a “strong and unqualified endorsement of Mexico's economic management.” (Incidentally, there is an open secret among Wall Street analysts. To determine which country's economy will implode next in riots and unrest, simply look to see where IMF agents have been most active.)


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