Tequila, guano, casinos: how coincidence destroy whole countries
Examples from history when minor coincidence of circumstances may cause national crisis.
"Tequila effect": Mexico, 1994
Author and source - Vitaliy Chernenko
February 15, 2017 (Investorideas.com Newswire) Hispanic phrase "Tequila Effect" is often translated as "Domino Effect". But it can also be interpreted a little differently. If the "Domino Effect" is a chain of related events, the "Tequila Effect" - the situation where a plurality of relatively small and not always related accidents lead to major problems. That happened with the Mexican economy in 1994.
In early 1994, an uprising began in Chiapas province; one of the candidates for president of the country has been killed; Federal Reserve of US sharply raised the base rate, making the dollar a more attractive currency for investment. All this has reduced investors' confidence in the Mexican economy and led to a rapid increase in the outflow of capital. To keep the capital, the administration of outgoing President Carlos Salinas issued bonds with payments in US dollars.
Mexican peso rigidly pegged to the dollar, it was clearly overvalued, but the central bank kept its course, spending reserves, and the government has increased its debt burden. Nevertheless, in November 1994 for the country about $ 3 billion was withdrawn from them in just one day of November 18 - 1.6 billion. As a result, in December, the peso was "released", and its exchange rate fell.
The country's GDP in 1995 dropped by 6.2%, inflation reached 35%, unemployment rose from 3.7 to 6.2%, real wages fell by 20% and only recovered in 10 years. The country is partly saved by a series of international credits totaling $ 50 billion (in exchange for the adoption of harsh austerity measures and the establishment of order in finance). The fall of the national currency helped boost exports and revive the economy as a whole: in 1996 GDP began to grow.
"Casinomics": Finland, 1990
In the 1980s, Finland deregulated financial markets, resulting in an influx of foreign investment began and dramatically increased the debt of local banks to foreign creditors. Finnish banks, attracting cheap foreign loans, engaged in financial speculation and large investments in risky projects.
This period is called "Casinomics": actions of banks more like bets on live roulette or in a live casino than a thoughtful conservative investments. As a result, in the early 1990s the big banks SKOP and the STS collapsed, the latter was known as "box office" for the politicians of the Socialist Party and trade union bosses, who loaned large sums of money on their business projects (which was a complete failure in future).The collapse of the banks could cause the collapse of the entire financial system in Finland and a strong economic crisis, so the government has allocated tens of billions of FIM to support banks by restructuring of the banking system.
El Niño against man: Peru, 1973
By the early 1970s, a local variety of anchovy was one of the main sources of currency for Peru. However, in 1972, the immoderate catch overlapped natural disaster: sustainable change in ocean currents, known as El Niño, dramatically reduced the population of anchovies. Production collapsed from 12 million tons in 1971 to 1.2 million in 1973.
Also sharply decreased the number of birds feeding on anchovies. For the economy of Peru bird droppings was important: the soil must be fertilized on a regular basis to produce a crop. Due to the shortage of guano production of agricultural products in 1970 in Peru has decreased, which led to the ruin of the peasants. This was one of the main reasons for the fall of the socialist military junta that ruled for 12 years in 1980.
contact email - peccatum.s1n(at)outlook(dot)com
Disclaimer/Disclosure: Investorideas.com is a digital publisher of third party sourced news, articles and equity research as well as creates original content, including video, interviews and articles. Original content created by investorideas is protected by copyright laws other than syndication rights. Our site does not make recommendations for purchases or sale of stocks, services or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investment involves risk and possible loss of investment. This site is currently compensated for news publication and distribution, social media and marketing, content creation and more. Contact each company directly regarding content and press release questions. Disclosure is posted for each compensated news release, content published /created if required but otherwise the news was not compensated for and was published for the sole interest of our readers and followers. More disclaimer info: http://www.investorideas.com/About/Disclaimer.asp
Disclosure: This article is a paid for sponsored article on Investorideas.com.