Mexican Immigration to Las Vegas in the 1990s: The Tequila Crisis

Written by Roberto, Lex Tecnica Law Clerk

The Tequila Crisis of 1994-1995: How a currency collapsed in December 1994 created a large Mexican diaspora in Las Vegas.

As a member of the Mexican American community, I have often wondered why my parents and the parents of my friends immigrated to America when they did. This blog post attempts to answer a part of that question.

As a member of the Mexican American community, I have often wondered why Mexican immigration to Las Vegas and across the US spiked in the 1990s, including why my own parents came when they did. This blog post attempts to answer a part of that question.

Background: Mexican Immigration and the 1990s Economy

During the 1990’s, the Mexican government took steps to stimulate economic growth and private investment through the privatization of state-owned enterprises, a currency stabilization plan, and the removal of restrictions on foreign investment. Among those initiatives was Mexican President Salinas’ (1988-1994) currency stabilization plan commonly referred to as the “Pacto”. 

Although specific goals and provisions of the “Pacto” changed over the years, the “Pacto” represented a commitment to foreign investors to pursue prudent fiscal policies and exchange rate stability. Mexico’s exchange rate policy changed several times in the years before the Tequila Crisis. Initially to spur investor confidence, the peso was fixed to the U.S. dollar from March to December 1988. In 1989, Mexico adopted a “crawling peg,” allowing for a gradual depreciation of the Peso against the US dollar. By November 1991, Mexico moved to a “band system”, under which the peso could fluctuate within a narrow range, while still losing value slowly over time. On January 1, 1993, Mexico redenominated its currency to combat high inflation, creating the “Nuevo Peso” by removing three zeros from the old peso. The new peso was equal to 1,000 old pesos.

The “Pacto” was ultimately successful in reducing inflation from an annual rate of 159% in 1987 to 8% by the end of 1993. The reforms attracted about $93 billion in net capital inflows during 1990 through 1993. By December 1,1993, 3.10 MXN was the equivalent of $1 USD, a far cry from the 17.79 MXN to $1 USD exchange rate as of 04/01/2026.

However, these investments were heavily concentrated in relatively liquid portfolio investment rather than long term direct investment. As a result of the liberalization of financial laws Mexico’s equity markets received roughly $USD 23 billion in foreign investment between 1990 and 1993. By the end of this period, nonresident investors accounted for 27% of the capitalization of the Mexican equity market.

The Crisis: Mexican Immigration to Las Vegas in the 1990s

Political instability of 1994 played a major role in sparking the Tequila crisis. A series of political shocks and high profile crimes, culminating in the March 1994 assassination of presidential candidate, Luis Donaldo Colosio, damaged Mexico’s image as a stable and modernizing economy. Foreign investors became reluctant to hold peso instruments and began pulling their investments out of the country. By April 22, 1994, foreign reserves had fallen by roughly $10.8 [KI2] billion.

Mexican authorities responded by shifting from “cetes” [short term, peso denominated, Mexican government treasury certificates] to “tesobonos” [short-term dollar fixed indexed notes]. The tesobonos offered an attractive investment option because they protected holders against devaluation by transferring the exchange rate risk to the Mexican government. By November 1994, the share of tesobonos in outstanding debt rose from 6% to 50%. From March to December 1994, outstanding tesobono obligations increased from $3.1 billion to $29.2 billion[KI3] . In November 1994, the Mexican government was forced to draw on foreign currency reserves to meet the demand for dollars, sparking concern of a sovereign default risk. These concerns were compounded on December 9, 1994, when the Mexican government announced it expected an even higher account deficit in 1995, but planned no change in its exchange rate policy, despite a drop in foreign exchange reserves to $10 billion, and $30 billion [KI4] outstanding in tesobono obligations due in 1995.

On December 20, 1994, to calm the ensuing financial panic, the Mexican government announced a widening of the peso/dollar exchange rate effectively devaluing the peso by 15% in a single day, however no new fiscal or monetary measures were announced to ease the devaluation. By December 21, the Mexican government had lost $4[KI5]  billion in foreign reserves in an effort to maintain its exchange rate and meet its debt obligations. On December 22, 1994, the Mexican government was forced to abandon its peg and free float its currency.

At the start of December 1994, the exchange rate was about 3.44 MXN per 1 USD, by December 30, 1994, the exchange rate had jumped to 5.00 MXN per 1 USD. By December 1995, the exchange rate was about 7.74 MXN per 1 USD. By December 2000, the exchange rate had fallen to approximately 9.62 MXN to 1 USD. Since 2000, the peso has continued to depreciate against the U.S. dollar.

The Tequila Crisis produced one of the most significant migration waves from Mexico to the United States. During the 1990’s, the number of Mexican immigrants living in the United States rose by nearly 5 million, making up an estimated 2.16% of the population in 1990 to 4.11% of the population in 2000, based on census data. Las Vegas in particular, experienced a growth of 43% in its Mexican immigrant community during that time, increasing by an estimated 93,840 individuals.

To answer my initial question, many Mexican families immigrated when they did because the economic collapse and rapid devaluation of the currency which occurred in the 1990’s, left them without a practical alternative.

Sources:

U.S. Gen. Acct. Off., GAO/GGD-96-56, Mexico’s Financial Crisis: Origins, Awareness, Assistance, and Initial Efforts to Recover (1996). https://www.gao.gov/assets/ggd-96-56.pdf

David Card & Ethan G. Lewis, The Diffusion of Mexican Immigrants During the 1990s: Explanations and Impacts, in Mexican Immigration to the United States 193 (George J. Borjas ed., 2007). https://www.nber.org/system/files/chapters/c0095/c0095.pdf

Board of Governors of the Federal Reserve System (US), Mexican Pesos to U.S. Dollar Spot Exchange Rate (DEXMXUS), FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/DEXMXUS 

This article has been reviewed and approved for legal accuracy by Kathleen Ireland, Esq. It is intended for informational purposes only and does not constitute legal advice.