ABSTRACT
In 2008–2009 the world economy faced its worst crisis since the Great Depression. The bursting of the subprime housing bubble in the United States detonated a series of dramatic shocks in the world economy, causing the collapse of numerous banks, big corporations, and small and medium-sized firms, and pushing some governments virtually to default. The crisis caused a sharp decline in credit flows and economic activity in the United States and in the Organization for Economic Cooperation and Development (OECD), which affected all emerging markets. Latin America was severely affected. Indeed, the region experienced a major economic slowdown, and in many countries output and employment declined. In 2008, Mexico's real GDP expanded by only 1.2 percent, much lower than the 3.3 percent attained the year before, and in 2009, Mexico experienced the largest drop in real GDP in Latin America (–6.1 percent): a contraction similar to that observed in 1995, which was the result of profound internal imbalances that led to the so-called “tequila effect.” In the last months of 2008 and early 2009, the Mexican government implemented a series of countercyclical policies to ameliorate the economic and social impact of the crisis. However, these policies were modest, particularly relative to those implemented in other Latin American countries, and were withdrawn after a few months.
