(FORTUNE Magazine) – The U.S. Marines pounced on the port of Veracruz in 1914, following in the bootsteps of Spanish and French invaders who had landed there at different times in the years before. Now, in a strange and poignant twist of history, the Mexican government, caught in a sudden and severe financial crisis, says it is willing to sell-or, to put it more politely, privatize-not only the oft-besieged Veracruz but three other harbors, the capital's airport, an undisclosed number of toll roads, and the 1,600-mile national railway system.

To business leaders and investors around the globe, Mexico seems to be at the beginning of either a major financial meltdown or a great, glittering bargain. Based on the persistent weakness of Mexico's currency and its cratering stock market, the optimists are still wildly outnumbered. Indeed, even they concede that recession looms as a large possibility.

But for a moment, put aside all the disturbing headlines about the plummeting peso and the bottomless bolsa, and consider this: Mexico has been in much worse shape before--in 1976 and 1982, for example--and recovered. Even many who have recently rushed to get out the door know that Mexico will ultimately rebound. They know, too, that the best business and investment opportunities are often found in the midst of panicked selling. What keeps them from buying now is fear, but that won't last forever.

Already, the prospect of bargains such as those pictured above have piqued the interest of some big U.S. companies. Southern Pacific says it wants to know more about the possible sale of Mexico's railroad. And there are plenty of smaller business opportunities to attract U.S. buyers--hotels in Acapulco, factories in Monterrey, boutiques in Cuernavaca, now likely selling at discounted prices. Fleet-footed hedge fund managers, who live for crisis moments like these, have already swooped in to start buying badly beaten Mexican Brady bonds, down more than 20% since the crisis began. (For more on Mexico's stocks and bonds, see Personal Investing.)

In short, for U.S. business, the case for investing in Mexico grows stronger with each downward lurch in the peso. Since President Ernesto Zedillo's government disclosed that it would no longer support the currency, the peso has dropped from 3.5 to the dollar on December 19 to a feeble 5.6 or so in mid-January, a decline of close to 40%.

But more alluring even than the dollar's enhanced buying power is the basic promise of Mexico's economy in the years ahead. This is not 1982, when the country's financial crisis was linked to a wrecked economy. Back then, the Lopez Portillo government ran a deficit equal to 16.9% of GDP (the U.S. deficit has never even reached 7% of GDP since World War II), betting wrongly that Mexico's vast oil and gas riches would let the country live grandly and effortlessly. Creaky, government-owned businesses plodded along, protected from foreign competition by elaborate regulations. When the party ended, Mexico was almost bankrupt, and its workers' purchasing power was headed into a five-year slide.

But since the late 1980s the fundamentals of the Mexican economy have changed dramatically for the better. The budget is now virtually balanced. Hundreds of government-owned businesses, from airlines to steel plants, have been sold to private enterprise, and the economy is rapidly being opened to the bracing forces of global competition. NAFTA will phase out Mexico's protective tariffs over the next 15 years. More alluring still is the country's middle class, some 20 million strong, with decent jobs and rising aspirations.

So why this latest crisis? "The Mexicans were doing everything right--with one exception, and you can't do that thing wrong," says Stanley Fischer, a deputy managing director of the International Monetary Fund. They borrowed and bought too much from the world while selling too little, driving the current-account deficit to more than $28 billion, a lump equivalent to 8% of the country's GDP. By comparison, the U.S. current-account deficit is less than 3% of GDP.

It should come as no surprise that current accounts is the banana peel on which Mexico's leaders would slip. Developing countries differ greatly from one another in ways that investors, big and small, often overlook. Asian culture rewards thrift, savings, and investment. The Latin spirit, on the other hand, extols consumption. "The moment things seem to be getting better, Latin Americans spend like there's no tomorrow," says Arturo Porzecanski, a former Mexico resident and an economist for ING, the Dutch banking and insurance conglomerate.

The upside of that great desire to consume has long been obvious to American business. Mexicans bought close to $50 billion worth of American cars, clothes, computers, and the like last year, giving the U.S. one of its biggest bilateral trade surpluses. But the downside of such spendthrift ways is equally clear: It leads to deficits, which often lead to bigger problems.

Mexico's Ivy League technocrats knew all about the current account and trade flows, but it is not enough to excel in economics if you nod off in psychology class. Both the Zedillo Administration and the Salinas team that preceded it failed to take sufficient account of the potential market reaction to the trends in consumption and trade. Says Sidney Weintraub, a professor of economics at the University of Texas and an occasional consultant to the Mexican government: "They felt it was okay to run a big current-account deficit so long as foreign capital kept coming in--that capital would finance production."

In other words, the availability of foreign capital would enable Mexican industry to grow more efficient and competitive. That, in turn, would increase exports, which would ultimately bring the account into balance. In textbooks, maybe so. But in a country where investors are already made uneasy by gun-toting rebels in Chiapas and easily distracted by rising interest rates in the U.S., nerves begin to count for more than economic principles.

Even among the most knowledgeable observers of Mexico, few fully appreciated the growing risks. Those that did pretty much kept it to themselves. The IMF reportedly warned Mexican officials privately that the country's current-account balance was worrisome. But it didn't make the advisory public. "To do that would be to cause the thing we're trying to prevent--a run on the peso," says the IMF's Fischer. With the IMF staying hushed, most Wall Street firms remained focused on potential gains, recommending Mexican stocks and bonds right up until the crisis broke in late December. How do you explain Wall Street's analytical lapses? Fischer has no quick answer, except to pull out a copy of Charles Mackay's 1841 classic, Extraordinary Popular Delusions and the Madness of Crowds, the chronicle of the South Sea Bubble, Tulipomania, and other collapses.

When the tide turned, it did so rapidly. It started in late November, when Mexicans, anticipating the devaluation of the peso that traditionally accompanies a change in administrations, began to withdraw their money from local markets and send it abroad. Zedillo's new government, perhaps preoccupied with preparing its first budget, didn't seem to notice. On December 19, the guerrillas in Chiapas made some gains, scaring still more money out of the country. Dollar reserves shrank to a dangerously low $11 billion, not enough to pay dollar-pegged bonds that were coming due. In response, the government announced a devaluation of the peso December 20. More money fled. Within a few days, dollar reserves had shriveled to $5 billion, and the government announced that it would no longer--could no longer--guarantee dollars for pesos at any price. The peso went into a free fall, and stocks tumbled.

With Mexico's investor mania now in reverse, Finance Minister Guillermo Ortiz has had to scramble to keep the peso and the stock market from further setbacks. He hurried to Wall Street and Washington in early January with a radical plan to revamp the economy and lure back foreign capital. Based on agreements that were announced January 3, the government will cut spending, and Mexico's labor unions will hold their wage gains to 7%. With the peso's fall, inflation will run near 15%, so workers will effectively be taking a big pay cut. Over time the decline in real wages will make Mexican exports cheaper and more competitive.

At first, the plan failed to calm the markets. But with an $18 billion credit line offered by international lenders, and President Clinton's offer to augment that credit line with billions of dollars in loan guarantees if needed, the markets began to calm down in mid-January.

Once the dust settles, it should become clear just how bad the year ahead is going to be. By Ortiz's accounting, GDP growth will slow to 1.5% in 1995. Analysts outside government consider that optimistic. Roger Scher of S.G. Warburg believes that Ortiz's pledge to cut the current-account deficit in half means a continuation of high interest rates, declining real wages, and government spending cuts, which could shrink the economy by 2%.

"This economy has gone from First World to Third World overnight," grumbles one U.S. expatriate. He's overwrought, but there's no question that much of the foreign business community faces a difficult time. Even if the economy grows a little, the markets in which foreign businesses operate will feel tough times: Most of them either sell products that are made abroad or offer services dependent on equipment that is.

Sales will suffer too, at least for a while. Take the Mexican consumer who could have, say, put a new Detroit-made car battery in his Chevy Cavalier for 175 pesos in 1994. He'll have to pay more than 280 in 1995. That assumes that the peso will creep through the year at about its current exchange rate. But who knows where it will settle? So businessmen have to confront great uncertainty, something they loathe. GM sells many thousands of batteries and other parts every year in Mexico. How many can they move this year? Peter Carvell, manager of GM's parts supply in Mexico, has retained his sense of humor. Says he stoically: "We've made an intelligent, swinging, wild-assed guess and figure that sales will drop about 20%."

John Bruton, the executive vice president of the American Chamber of Commerce of Mexico, tries to sum up the mood of the organization's 2,900 members, a number that has expanded by about 20% since the signing of Nafta. "The good news," he says, "is that people are talking about how to survive, not how to get out." Remarkably, some companies with both guts and foresight are shrugging off the peso crisis and either expanding their operations or tackling the Mexican market for the first time. Their strategies are worth noting if you're planning a heroic entry into Mexico's market.

One strategy is to offer an irresistible product. Archer Daniels Midland, the $10 billion Illinois agricultural processor, has sold corn and other commodities to Mexico for three years. In the past two years it has built two new Mexican plants that crush corn into mash for tortillas. Now ADM is going ahead with a $60 million expansion.

"Some 90 million Mexicans eat from seven to ten tortillas a day, and they aren't going to stop," says Howard Buffett, assistant to Chairman Dwayne Andreas and Warren Buffett's son. Here's where ADM comes in. According to Buffett, 80% of the tortilla mash is ground by mom and pop operations, most of which can't afford the water-recycling equipment required under Nafta's environmental rules. ADM's clean and efficient mills, says Buffett, will be able to churn out inexpensive tortilla mash that will capture a substantial part of the market.

Businesses that get by without imports are also well positioned to prosper. Life insurance is as rare in Mexico as the tortilla is ubiquitous. The ING Group aims to change that. Over the next three years ING will hire up to 1,000 local men and women and train them as agents. As Mexican nationals, the agents will be paid in pesos. They can collect premiums and pay benefits in the local currency as well.

The time is ripe for companies that can export from Mexico. Guilford Mills of Greensboro, North Carolina, didn't set out to defy the whirlwind of the troubled peso. Courage was thrust upon it. Guilford, which makes apparel, automobile seat cover fabric, and headliners for the inside roofs of cars, had spent more than $10 million in the months before the peso crisis to increase its stake, from 20% to 75%, in a Mexican company confusingly named American Textil. That was unfortunate timing, because Guilford could have bought the same share for about $7 million today. "Yes, yes," agrees Chairman Chuck Hayes. "If I had a crystal ball, I would have done a lot of things differently over the years."

Hayes will try to make the best of misfortune. American Textil has the same product line as Guilford, but with the peso down, it now has lower labor costs, so it will begin exporting to the same U.S. markets that Guilford sells to.

There are myriad reasons to stay away from Mexico, as there were in the far worse crisis 12 years ago. But those who had the conviction to move then are watching today's crisis from atop a mountain of pesos--pesos worth less than a month ago, to be sure, but still a pile.