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Acme de Mexico: Recuerdos Tristes de un Pasado Alegre

Posted: 22 Oct 1997  

Ingo Walter

New York University - Leonard N. Stern School of Business; New York University (NYU) - Department of Finance


SUBJECT AREAS: Country risk, cross-border exposure management, Mexico, tequila effect, financial crises.

CASE SETTING: 1995, manufacturing, Mexico.

The purpose of this case is to convey an understanding of the cross-border economic, political and financial risks faced by companies doing business in emerging markets under high-stress conditions. Diagnosis of sources of risk and return and their pricing, interaction between country risk and firm-specific risk, and the interaction between macroeconomic policy and its microeconomic consequences can be discussed using this case. The case focuses on the pathology of the Mexican situation between the time of the 1982 debt crisis and the Tequila crisis of 1994-95.

Students should use the tools of open-economy macroeconomics to diagnose how the country got back into trouble after a sterling track record following the Brady Plan debt workout.

The first dimension of the case considers the open-economy macropolicy framework. What was Mexico doing right? Mexico was widely praised for conforming to the "Washington Consensus" of market liberalization, privatization, responsible monetary policy, highly responsible fiscal policy, etc. What went wrong? Unwillingness to deal with a deteriorating fiscal and monetary picture that included upward pressure on the real exchange rate, leading to an increasing need for external finance, which was done in large part through the issuance of Tesebonos (dollar- indexed, guaranteed-convertible short-term peso securities). Many were purchased by Mexicans and foreign institutional investors, who would liquidate as soon as confidence in policy and in the Peso was shaken. Those fundamentals plus the onset of political crises set off the run and the collapse of the peso and the need for the rescue. The second dimension of the case considers the same issues from a corporate perspective. The near-term aspect deals with the stock and trade of international financial management, setting the probability of loss from foreseeable and unforeseeable events against the cost of insurance. A currency devaluation will hit the balance sheet immediately. In high inflation countries profits are either made or lost by the way the balance sheet is managed. The long-term issue is how operating conditions in Mexico are likely to evolve over the firm's planning horizon.

REQUESTS FOR COPIES: To receive a copy of this case please contact:
Ms. Ann Rusolo, Stern School of Business, New York University, 44 West 4th Street, New York, NY 10012, Phone: (212) 998-0703 Fax: (212) 995-4220 E-Mail:

Suggested Citation

Walter, Ingo, Acme de Mexico: Recuerdos Tristes de un Pasado Alegre. Available at SSRN:

Ingo Walter (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0707 (Phone)
212-995-4220 (Fax)

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

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