Chapter 882: Mexican currency crisis breaks out

In mid-December.

Liu Tao came to Hong Kong.

In addition to handling some things in Hong Kong this time, the most important thing is to short Mexico and some Latin American markets.

After all, the funds mobilized are too large, and Mexico cannot accommodate so much funds.

This time Liu Tao mobilized 10 billion US dollars, 50 times leverage, that is 500 billion US dollars.

Mexico is so small that it can't withstand so much money.

Since the signing of the North American Free Trade Agreement, Mexico has been favored by the whole world. It is believed that Mexico will develop rapidly in the future. In five years at the fastest and ten years at the slowest, Mexico can become a developed country.

After all, Mexico's advantages are too obvious. Compared with the United States and Canada, Mexico's labor costs are visible to the naked eye.

But no one thought that Mexico actually already contains a huge crisis.

The development of finance not only promotes social development, but is also an important means to maintain the order of modern society.

From a certain perspective, the world is controlled by finance!

The financial industry affects all aspects of people's lives. Finance can create wealth and also give rise to bubbles. The bursting of a country's financial bubble can subvert the country and even the world.

Financial security is actually an important part of national security. Financial sovereignty itself is the embodiment of a sovereign state.

In the 50 years after World War II, Mexico gradually established an industrialized national economic system by pursuing an active import substitution development policy, which was called the development model of a major emerging industrial country by the international economics community.

As early as 1992, Mexico's per capita GDP reached US$3,030, making it the second largest country in Latin America after Brazil.

In view of its achievements in economic reform, Mexico has always been called a "model" for economic reform and a "hot spot" for investment.

Coupled with the formation of the North American Free Trade Area, Mexico has huge advantages. It is generally believed that it only takes a few years for Mexico to reach a per capita GDP of US$10,000 and become a developed country.

But this is just a bright and beautiful appearance. In fact, a huge crisis has been brewing inside.

From 1980 to 1983, Mexico implemented a "crawling peg to the US dollar" system, which is an exchange rate system that allows the currency to gradually appreciate or depreciate depending on inflation. In August 1982, the Mexican government was unable to repay its foreign debts, and the Third World debt crisis that shocked the world kicked off. The Mexican debt crisis announced the failure of the "government-led economic system" and the "import substitution economic growth model".

From 1980 to 1989, the average annual growth rate of Mexico's GDP was only 0.7%, and the per capita GDP was lower than the population growth rate. Inflation continued to rise, reaching a record high of 159.2% in 1987.

159.2% inflation rate, how terrible!

In 1987, the Mexican government used the exchange rate as an anti-inflation tool, that is, pegging the peso to the US dollar. Although the anti-inflation plan with the exchange rate pegged to the US dollar as the core was relatively successful in reducing the inflation rate, the depreciation of the domestic currency was less than the increase in the inflation rate, and the overvaluation of the currency was inevitable, which would weaken the international competitiveness of domestic products.

It is estimated that if calculated by purchasing power parity, the peso is overvalued by 20%.

This time, the anti-inflation plan also generated a consumer boom, expanding demand for imported goods. While imports increased sharply, Mexico's exports grew sluggishly, growing 2.7 times from 1989 to 1994, while imports grew 3.4 times.

As a result, Mexico's current account deficit was $4.1 billion in 1989, and expanded to $28.9 billion in 1994.

In the late 1980s, net indirect investment into Mexico was about $5 billion per year, but by 1993, this net inflow of foreign capital had reached nearly $30 billion.

It is estimated that indirect investment accounted for as much as two-thirds of the total foreign investment inflows into Mexico from 1990 to 1994.

In order to stabilize the confidence of foreign investors, in addition to stating that it would not devalue the peso, the government also replaced a short-term bond pegged to the peso with a short-term bond pegged to the dollar. As a result, foreign investors sold a large number of short-term bonds pegged to the peso and bought short-term bonds pegged to the dollar.

So far, the short-term bonds issued by the Mexican government have reached 30 billion US dollars, of which 16.76 billion US dollars will mature in the first half of next year, while Mexico's foreign exchange reserves are only a few billion US dollars.

This means that the Mexican government has no ability to repay short-term bonds, and bond default is inevitable.

But all this has been ignored.

Everyone is immersed in the dream of the North American Free Trade Area and Mexico's imminent development.

In Hong Kong, through Internet trading, thousands of accounts in European countries, the United States, Singapore, Japan, South Korea, the Middle East, and various offshore islands began to short Mexico.

In fact, it is not only Liu Tao who is shorting Mexico. Soros and other crocodiles have opened their bloody mouths and pounced on Mexico.

In just a few days, that is, in the late night of December 19, 1994, the Mexican government suddenly announced to the outside world that the national currency, the peso, would depreciate by 15%.

This decision caused great panic in the market. Foreign investors frantically sold pesos and snapped up dollars, and the peso exchange rate fell sharply.

International hot money is like a shark smelling fishy smell, excitedly rushing to Mexico, wanting to take a bite of Mexico's fat meat.

On December 20, the exchange rate fell from the initial 3.47 pesos to 1 US dollar to 3.925 pesos to 1 US dollar, a sharp drop of 13%. On December 21, it fell another 15.3%.

In other words, in just two days, the exchange rate fell from the initial 3.47 pesos to 1 US dollar to 4.526 pesos to 1 US dollar, a sharp drop of 30.43% in two days.

The depreciation of the RMB by 0.1% is called the sky falling, and this 30.43% drop in the peso is simply devastating.

With the depreciation of the peso, foreign investors withdrew funds in large quantities, and Mexico's foreign exchange reserves dropped by nearly 4 billion US dollars in two days from the 20th to the 21st, and Mexico's foreign exchange reserves were exhausted.

The entire financial market in Mexico was in chaos.

From the 20th to the 22nd, in just three days, the exchange rate of the Mexican peso to the US dollar plummeted by 66.3%.

Capital outflows are like a fire under the cauldron for the Mexican stock market. The Mexican stock market fell in response. In just a few days, the IPC index of the Mexican stock market fell to 1,500 points, a cumulative drop of 47.94% from the highest point of 2,881.17 points in 1994, and it is still falling rapidly.

Mexico's financial crisis this time spread quickly.

Since the economic structures of other Latin American countries such as Argentina, Brazil, and Chile are similar to those of Mexico, they all have economic problems such as heavy debts, trade deficits, and overvalued currencies to varying degrees. The outbreak of the Mexican financial crisis first affected these countries.

Because foreign investors are afraid that the Mexican financial crisis will spread to all Latin American countries, they have sold stocks in these countries, causing a sharp drop in Latin American stock markets.

On the day of the Mexican currency crisis, the stock indexes of Latin American countries fell along with the Mexican stock index, with the Brazilian stock index falling by 11.8%, Argentina by 9.5%, and Chile by 7.6%.

At the same time, the prices of various bonds issued by Latin American countries also plummeted. During the stock market crash, investors withdrew US$1.6 billion from Argentina and US$1.226 billion from Brazil, equivalent to 10% of the total foreign investment in Brazil. The entire Latin American securities market lost US$8.9 billion.