professionals from multiple disciplines within the financial institution and may involve significant fees or high returns in relation to the market and credit risks associated with the transaction. third, they may be associated with the creation or use of one or more special - purpose entities designed to address the economic, legal, tax, or accounting objectives of the customer or the use of a combination of cash and derivatives products. fourth, and perhaps most important, they may expose the financial institution to elevated levels of market, credit, operations, legal, or reputational risks. as we are all too aware, in the most extreme cases, complex structured finance transactions appear to have been used in fraudulent schemes to misrepresent the financial condition of public companies or evade taxes. as a result, the corporations that engaged in these improper transactions and the financial institutions that structured and advised on these transactions have been subject to civil and administrative enforcement actions. the existence of these schemes has also sparked an investigation by the permanent subcommittee on investigations of the senate committee on governmental affairs, as well as numerous lawsuits by private investors. although these events have raised serious concerns, it is important to recognize that structured finance transactions and other market innovations, when used and designed appropriately, play an important role in financing corporate america. structured finance transactions, as well as financial derivatives for market and credit risk, asset - backed securities with customized cash flow features, and specialized financial conduits that manage pools of purchased assets, have served the legitimate business purposes of bank customers and are an essential part of u. s. and international capital markets. however, financial institutions may assume substantial risks when they engage in these transactions without a full understanding of their economic substance and business purpose. these risks often are difficult to quantify but the result can be severe damage to the reputations of the companies engaging in the transactions and their financial advisers, and in turn, impaired public confidence in those institutions. these potential risks and the resulting damage are particularly severe when markets react through adverse changes in pricing for similarly structured transactions that are designed appropriately. assessments of the appropriateness of a transaction for a client traditionally have required financial firms and advisers to determine if the transaction is consistent with the market sophistication, financial condition, and investment policies of the customer. given recent events, it is appropriate to raise the bar on appropriateness assessments by taking into account the business purpose and economic substance of the transaction. for those of you who are cfos or other senior officials of corporations seeking to engage in complex structured finance transactions

in latin america - raised interest rates to high levels and drew down its stock of international reserves to keep its currency - the real - from falling. however, pressures on brazil re - emerged following the russian devaluation in august 1998. the high interest rates necessary to defend the real became increasingly difficult to sustain, and the authorities floated the currency in january 1999. the real depreciated about one - third in the subsequent six months. to the surprise of most observers, brazilian gdp fell only 3 % from its peak during the second quarter of 1998 to a trough at the end of that year. perhaps even more surprisingly, brazilian inflation remained restrained after the devaluation, and the economy registered strong growth during the first half of 1999, nearly erasing the contraction that occurred during the second half of 1998. ironically, several of brazil ’ s neighbors have fared worse. argentina successfully defended its exchange rate regime but has suffered a comparatively steep decline in economic activity. the high interest rates necessary to defend its peg to the dollar, along with the intensified uncertainty generated by the crisis and reduced competitiveness following the brazilian devaluation, pushed argentine gdp down 5 % from mid - 1998 to mid - 1999. activity in chile, colombia, and ecuador has fallen by a comparable amount. mexico ’ s experience, however, stands as an interesting contrast. for a number of reasons, which i will discuss later, economic activity in mexico generally has remained strong. the country has endured only one quarter of negative gdp growth in the past three years. a second means of assessing the impact of the crisis on the two regions is the degree of external adjustment that occurred ( exhibit 2 or exhibit 2a ). significantly, thailand ’ s current account swung from a deficit of 8 % of gdp in 1996 to a surplus of 12 % of gdp in 1998. this startling adjustment in the current account balance was accomplished entirely by a compression of imports, as the dollar value of exports was about flat, but imports plunged 40 %. the story for other major asian crisis countries is broadly similar. in contrast, current account adjustment in the three major latin american countries has been much less pronounced. all three countries have remained in deficit, with total adjustment during the crisis estimated to amount to only about $ 15 billion ( compared with $ 120 billion in asia ) and current account deficits remaining around 3 % to 5 % of gdp. thailand ’ s gdp declined during 1996 : q4 and 1997 : q1. the economy rebounded briskly during