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 higher domestic inflation and led to an overvalued peso, which contributed to the peso crisis. While it may have helped Mexico's trade balances in the short term, the reliance on foreign capital made the country vulnerable to external shocks and financial instability.

Prior to the Peso Crisis, Mexico Depended on Foreign Portfolio