At the most recent G20 meeting in Berlin on 20 and 21 November 2004, the challenges to global growth were summarised as follows: “the United States needed to urgently address its fiscal and current account deficits which are resulting in major negative adjustments in other parts of the world; Latin American countries needed to continue with broad based structural reforms and pursue prudent fiscal policy whilst at the same time continuing with policies to encourage investment; Argentina in particular was urged to continue strengthening its banking sector and reviewing its fiscal system; the European Union member countries were urged to continue with structural reforms, in particular reforming their labour markets, consolidating their fiscal positions and reforming their pension systems; the Russian Federation was urged to “create foundations for more broad based and sustainable growth at a high rate”; the Russian Federation was further urged to introduce “reforms of the banking sector and the judiciary systems”; South Africa was urged to focus on infrastructure investment, increased savings and skills development; Saudi Arabia was urged to diversify its economic structure, support private sector development and improve the business environment for foreign investment; South and Southeast Asia were urged to improve the climate for investment, in particular through regulatory reform; India was encouraged to “reduce the budget deficit while raising sufficient resources (ie reforming the tax system) for infrastructure and rural development”; Australia was urged to improve flexibility in workplace relations to expand employment options, improve the tax and income support systems and make progress more generally with microeconomic reforms; Japan was encouraged to continue with its reform agenda, including measures to promote further reform of the financial system, foster privatisation and address more vigorously the problem of fiscal sustainability; China was encouraged to continue deepening the reforms of the state asset management system and the state owned enterprises, to promote the development of the non-state sector of the economy, to consolidate and strengthen the position of agriculture, to carry forward the reforms of the financial system, the fiscal and taxation systems and the investment climate, to push forward the employment and income distribution system, to improve the social security net and strengthen the reforms of the administration management system and the legal system”.
For example, if the company specified under the framework set forth in the FASB proposal that the derivatives are “cash flow” hedges of variable rate liabilities, the company would have volatility in equity or earnings based on the specifically linked effectiveness tests set forth by the proposal. Thus, the firm in using derivatives reduces its economic volatility, yet increases its accounting volatility.