In the period surrounding 1994-5, Mexico suffered from unstable economic conditions. Several factors were catalysts to this Mexican financial crisis. Although there are many contributing factors, there are three main factors that can be attributed to the blame; political turmoil, the devaluation of the peso and the health of the private banking

Labor costs were now lower than ever, which meant, labor-intensive goods could be produced extremely cheap in Mexico compared to its neighboring American companies. American jobs and products were lost to Mexican manufacturers, as we took advantage of their downfall. As a result, it was estimated that half a million Americans lost their jobs and about a fifth of a percentage point was knocked off the U.S.'s GDP in 1995. U.S. shipments to Mexico suffered, due to the weakness of the peso, causing the United States to experience a trade deficit with Mexico (Quicklink, n.p.). These related factors caused the United States to raise interest rates and there was a possibility that the U.S. dollar would be weakened in International markets as a result of our bumbling neighbor.

As a replacement of Colosio, Salinas pressed the Party's old Guard to choose his Education Minister, and Colosio's campaign manager, Zedillo, a Yale educated technocrat. Zedillo was weak, scared and colorless as a campaigner, but he was committed to Salinas' reform (Worldbank.org, n.p.).

The Mexican financial system was young and vulnerable, wild swings in expectations and investor confidence, in the reigning political party was common. The deciding factor for investors was panic due to political turmoil, which created concern among foreign lenders, about the safety of their investments. In 1994, investors pulled out due to a host of political shocks that dominated the news wire. The assassination of Luis Donaldo Colosio, the ruling party's presidential candidate and an uprising in the southern state of Chiapas, hit hard (Jainschigg, 31).

Perhaps the biggest blow occurred to the Mexican education system. The University of Mexico's budget was cut in half, which meant they could no longer afford resources to accommodate their student population. Students were cut, in an effort to downsize, and they no longer accepted any more students at the University level (Gould, 17). This caused many of the applicants to protest, leaving them angry with nowhere else to attend.

The majority of U.S. citizens wanted to turn their heads, and protect their own necks as a strong anti-Mexican, ethnocentric wave took hold in the west. The fact is Mexico wasn't going to go away and neither was their problem without some help from the US and NAFTA. The U.S.'s objective, "Economic Engagement", was to help Mexico economically, democratically, and attract U.S investment, with the intent of securing a future U.S market that would eventually be a strong ally. Through the help of NAFTA, this could be accomplished. NAFTA offered Mexico a great deal of future security and a significant increase in free access to the U.S. market (quicklink, n.p.).

With the help of NAFTA and a strong U.S. economy around the end of1995, Mexico began to show good signs of economic recovery and was now on its way to a better financial standing. The first signs could be seen in the Mexican trade balance, which had increased from an $18.5 billion deficit in 1994, to a $7.1 billion surplus, in 1995 only one year after the peso devaluation. At the end of 1996, confidence began to trickle back into Mexico as shown with an increase of about 5.1% in Gross Domestic Profit and a drastic 10.7% increase in industrial production (quicklink, n.p.). This only could mean one thing, a rise in employment as Mexico continued to pull itself out of the recession.

After a strong devaluation on December 20, the government and the Mexican central bank stepped in. The following two days were a nightmare of phony press releases and six billion in expenditures from Mexican reserves, to defend the peso, which only made it worse. Mexican authorities were forced to allow the peso to float freely on December 22, and its external value plummeted.

The final political blow came to Mexico in September, Zedillo's main political adviser, Jose Francisco Ruiz Massieu was assassinated. Investors jumped s

Some common words found in the essay are:
Domestic Product, Mexico Quicklink, GDP Mexico's, Unfortunately Mexican, University Mexico's, Central Bank, Economic Engagement, Spanish Mayan, Carlos Salinas, Agreement Mexico, worldbankorg np, exchange rate, help nafta, quicklink np, current account deficit, north american, account deficit, trade agreement, financial crisis, gross domestic, peso devaluation, gross domestic product, mexican banking system, mexican central bank, 74 pesos dollar,
Approximate Word count = 2991
Approximate Pages = 12 (250 words per page double spaced)