Investors fled Mexico on Tuesday, leaving behind a crumbling stock market and plunging peso that mocked government efforts to shore up confidence and sent shock waves throughout Latin America.
The country’s 22-day-old currency crisis threatened to spread to its already troubled banking system and to undermine the national solvency with President Ernesto Zedillo, a Yale-educated economist, apparently unable to stop it.
“Mexico is losing,” lamented one stock trader, smoking nervously on the steps to the city’s stock trading floor where shoving matches broke out as warning bells signaled the close of trading was near.
Only after the intervention of Mexico’s development bank, Nafinsa, did the market bottom out and recover slightly. But it still closed below 2,000, at 1,972.33 down 131.72 points, or 6.26 percent. Nafinsa bought up “a lot” of stocks late in the day, a bank official said.
The peso lost another 30 centavos, reaching 5.80 to the dollar from Monday’s 5, after the government failed a litmus test of confidence: Investors bought only $63.7 million of the $400 million in dollar-backed government bonds, or “Tesobonos,” that were offered at 20 percent yield.
Mexico’s stock-market jitters were duplicated Tuesday in Brazil, Argentina, Chile and Peru. And as uncertainty spread throughout Latin America - where many countries have undertaken difficult freemarket reforms dependent on foreign investment as Mexico did - the threat to Mexico and the rest of the region attracted high-level concern in the United States.
“It is enormously important that we work with Mexico and help them work themselves through this current difficulty, not only to help Mexico, but to make sure that does not spill over and interfere with the realization of the very substantial potentials in Latin America,” U.S. Treasury Secretary nominee Robert Rubin told a Senate confirmation hearing.
As early as next week’s scheduled auction, Mexican officials expect to try to lure Tesobono investors with bonds backed by U.S. government debt.