February 1982: Mexico Devalues Peso by 78 Percent

A combination of factors puts the Mexico into a major balance of payments crisis. US Federal Reserve Bank Chairman Paul Volcker’s decision to increase the Federal Reserve’s interest rate (see October 6, 1979) increases the amount of debt held by the Mexican government. In addition, a decrease in the global price of oil and a recession in the US (thereby decreasing US demand for Mexican goods) makes it harder for Mexico to pay off the debt on its own. The Mexican government decides to devalue the peso, its national currency, by 78 percent. [Hart-Landsberg, 12/2002]