Prior to the peso crisis,Mexico depended on foreign portfolio capital to finance its economic development.This foreign capital influx

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The influx of foreign portfolio capital caused both higher domestic inflation and led to an overvalued peso, as Mexico's ability to attract foreign investment resulted in an appreciation of the peso, making Mexican goods more expensive on global markets. This caused more inflation as the cost of imported goods went up. While foreign capital did help finance Mexico's economic development, it also created vulnerabilities in the country's financial system, such as a reliance on short-term debt and exposure to currency risks.

Prior to the Peso Crisis,Mexico Depended on Foreign Portfolio Capital