Mexican peso crisis ('Tequila Crisis')

Just weeks after NAFTA took effect, Mexico's government was forced to devalue the peso in December 1994 after a wave of capital outflows drained foreign reserves; the currency lost roughly half its value within months. The panic threatened to spread to other emerging markets, prompting the US Treasury and IMF to assemble an unprecedented $50 billion support package, the largest financial rescue of its kind at the time. Mexico's economy contracted sharply in 1995 and inflation spiked, but the country repaid the US loans early, ahead of schedule, and returned to growth within about two years. The episode became a template — and a warning — for how quickly capital flight can destabilize a liberalizing emerging economy.