Y2K May Spark Downturn - Senate Panel

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How does Special K talk out of both sides of his mouth and believe himself? If there are long term supply interruptions from overseas there will be disruption here. If they expect 2 or 3 months of utility problems in Russia then there will be 2 or 3 months of utility problems in Europe.

By Jim Wolf

WASHINGTON (Reuters) - The Year 2000 computer glitch is likely to trigger international supply-chain disruptions that may end more than eight straight years of U.S. economic growth, a Senate panel studying the problem said Wednesday.

With 100 days left to the year change, the Special Committee on the Year 2000 Technology Problem said it was ``greatly concerned'' about the international Y2K picture for strategic as well as economic reasons.

``Severe long- and short-term disruptions to supply chains are likely to occur'' as a result of Y2K-related system failures, it said in its 288-page report.

``Such disruptions may cause a low-to-moderate downturn in the economy, particularly in industries that depend on foreign suppliers,'' the panel said. The U.S. economy, a locomotive for the world, has been expanding since March 1991.

But John Koskinen, President Clinton's chief adviser on Y2K, said he expected Y2K to have no ``significant'' impact on the U.S. economy, citing what he called a consensus of forecasters.

At worst, Y2K-related tangles might shave one or two tenths of a percentage point off U.S. economic growth in the first quarter of 2000, he said in a telephone interview with Reuters.

Most of U.S. trade was with developed countries, ``and they're doing relatively well'' in preparing, Koskinen added.

``While the committee has become increasingly confident about U.S. Y2K preparedness, it has become increasingly concerned about international preparedness,'' said the report, the panel's last before the clocks tick over to 2000.

At issue is the coding glitch that could cause older computers and embedded chips to mistake 2000 for 1900 starting Jan. 1. Unless fixed, this could play havoc with everything from cash machines to telephones to power grids.


The committee listed its greatest concerns as China, Russia, Italy plus a handful of U.S. oil suppliers: Venezuela, Nigeria, Saudi Arabia, Colombia and Kuwait.

``Several important U.S. trading partners are severely behind in addressing the Y2K problem ... and are not likely to avoid significant disruptions,'' the report said.

Other countries' Y2K-related problems may wash up on U.S. shores ``in the form of recession, lost jobs or requests for international assistance,'' it added.

Committee Chairman Robert Bennett, a Utah Republican, cited a ``strong possibility'' that Y2K would tip the rest of the world, along with the United States, into a ``slight economic downturn.''

In addition, Bennett foresaw a ``slight'' possibility of a global recession -- at least two straight quarters of negative growth -- due to Y2K-related disruptions, committee spokesman Don Meyer said in an e-mail reply to a query from Reuters.

At a news conference, Bennett compared Y2K's potential domestic fallout with the harm to U.S. farmers sparked by the Asian economic crisis that began in Thailand in July 1997. Prices for many U.S. crops are at their lowest in decades because of huge supplies and weak foreign demand.

``I think that would be the model that we could look to as to what could happen,'' he said. ``But there is no really reliable model because the world has never gone through anything like this before.''


The committee, which has held about 30 hearings and heard testimony from more than 150 witnesses, voiced deep concerns about the lack readiness of U.S. health care facilities, state and local government operations, schools and small businesses.

In addition, it said local and regional power outages remained a ``distinct possibility'' in some parts of the United States. Both Koskinen and the chief trade group for U.S. electricity suppliers disputed this assessment.

All available data suggest any Y2K-related outages ``will be highly localized and of short duration,'' said John Castagna of the Edison Electric Institute, which represents most major electricity suppliers.

Panel vice chairman Christopher Dodd, Democrat of Connecticut, said a major U.S. concern remained the Medicaid system, the combined federal and state health-care program for the poor, elderly and disabled. It ``still needs some work in about 23 to 25 states,'' he said.

The panel also highlighted fears about possible ``trap doors'' that could have been stitched into the millions of lines of U.S. computer codes overhauled overseas to clean up Y2K issues.

If a ``trap door'' were inserted into key network software under the cloak of a Y2K repair, for instance, an adversary could gain access for years without anyone being the wiser, the panel said.


The panel cited Italy as a particular concern, partly because of the throngs expected to converge on the Vatican to mark the 2,000th anniversary of the birth of Christ.

Specific areas of concern are water, electric utilities, transportation, airports and, ``appearing weakest,'' Y2K preparation of hospital equipment, the report said.

The panel faulted an initial series of State Department country-by-country Y2K summaries as ``rather general, with little to distinguish one country from another.''

The State Department summaries were released on Sept. 14 after two sets of government-to-government consultations. Russia was likely to experience a month of disruptions in financial markets, two months for utilities and health care and up to three months of turmoil in transport and communications, the panel cited one assessment as saying and Meyer said it ''generally'' agrees with that assessment.

China appears to be very poorly prepared as well, the panel said. ``Because of improper planning, insufficient resources and a very late start ... the committee believes that a substantial portion of Chinese companies and the government will experience several failures,'' it said.

China may also be haunted because as much as 95 percent of its software ``is thought to be pirated,'' the committee said. ''This could prevent Chinese companies from receiving technical support from suppliers.''

-- y2k dave (xsdaa111@hotmail.com), September 23, 1999

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