When sore heads rolled after the tequila effect

One irony of the deep financial crisis that shook Mexico to its core in December 1994 was that its ritual victims would eventually be the clique whose pursuit of a shamelessly political agenda had caused it. When Mexicans ended the Institutional Revolutionary Party's 70-year monopoly of power in last year's elections, it was dramatic testimony to the role of political economy in understanding this long-suffering country. Sidney Weintraub's dissection of the peso crisis is a masterful work of economic history, although it is dulled by a cruder cultural critique.

The crisis originated in market unease about an overvalued peso and progressively greater central bank intervention to shore it up. Capital flight became a stampede after President Zedillo's novice finance secretary, Jaime Serra Puche, devalued by 15 per cent, pushing the peso into freefall. Panic - and the risk of similar problems across Latin America through the so-called "tequila effect" - prompted President Clinton to rally a $52.5 billion international rescue package. Mexico's economy then suffered its worst year since the Great Depression.

Weintraub argues that the economic explanations for the crash lie in Zedillo's predecessor, President Salinas's blinkered allegiance to an exchange-rate policy designed to tackle inflation. More seriously, political distractions caused by dramatic events in the run up to the 1994 elections derailed the economic logic of policymaking. This was the PRI's annus horribilis - a bruising concatenation punctuated by infighting, kidnaps, armed rebellion in the south and the assassination of the party's first presidential candidate - which threatened its grip on power and made electoral victory an imperative.

Weintraub's most nuanced insights are into the personal agendas of the protagonists, beginning with Salinas, who gambled on the peso to ensure a PRI win and to safeguard his reformist reputation.

The author highlights the prickly relationship between Salinas's finance secretary, Pedro Aspe, and his successor, Serra, who took office having been inadequately briefed and whose tinkering with the exchange rate had such catastrophic repercussions. The bookish Zedillo emerges fairly unscathed from this debacle and has atoned for any sins by last year's transfer of power to the opposition. But Weintraub argues that political and personal motives alone cannot explain ministers' policy errors, and their cultural predispositions contributed to their failure: not least the inheritance of a defensive nationalism, even in the economic realm, and the enduring products of single-party rule.

While this analysis might seem a sober study in political economy, Weintraub's deeper ambition is to understand how the cultural formation of decision-makers led them to ignore "underlying reality". This is his Achilles' heel and he fails. Alarm bells must surely ring when the navel-gazing of Octavio Paz is the point of departure for an examination of Mexican culture.

This foray into culture is of limited value and lacks the theoretical basis necessary - not least to avoid the charge of retrospective finger-pointing.

Gavin O'Toole is a PhD student, Queen Mary, University of London.