Mexico's Financial Crisis: Origins, Awareness, Assistance, and Initial Efforts to Recover.

Mexicos devaluation of the peso in December 1994 precipitated a crisis in Mexicos financial institutions and markets that continued into 1995. Investor confidence collapsed as investors sold Mexican equity and debt securities, and foreign currency reserves at the Bank of Mexico were insufficient to meet the demand of investors seeking to convert pesos to U.S. dollars. In response to this crisis, the United States organized a financial assistance package of up to 48.8 billion in funds from the United States, Canada, the International Monetary Fund IMF, and the Bank for International Settlements BIS. The multilateral assistance package was intended to enable Mexico to avoid defaulting on its debt obligations, and thereby overcome its short-term liquidity crisis, and to prevent the crisis from spreading to other emerging markets. In light of U.S. commitments to lend Mexico up to 20 billion, the Chairman of the House Committee on Banking and Financial Services asked GAO to prepare a comprehensive report on Mexicos 1994-95 financial crisis. In response to this request, GAO 1 examined the origins of Mexicos financial crisis 2 assessed the extent to which the U.S. government and IMF were aware of the severity of Mexicos financial problems throughout 1994 and provided financial advice to Mexico 3 described the U.S. and IMF response to the crisis, and provided an analysis of the statutory authority of the Secretary of the Treasury to use the Exchange Stabilization Fund ESF to finance the package and an assessment of the terms and conditions of the various agreements implementing the U.S. portion of the assistance and 4 examined the initial efforts of Mexico to recover from the crisis, which included a discussion of Mexicos access to international capital markets.