Y2K BUG POSES BIGGEST RISKS OUTSIDE U.S.

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Los Angeles Times Sunday, June 6, 1999

 

Y2K BUG POSES BIGGEST RISKS OUTSIDE U.S.

Computers: Response to millennium peril has been erratic or absent in

some countries.

 

By ASHLEY DUNN, Times Staff Writer

 

Even as many American companies are proclaiming victory over the Year

2000 problem, computer experts, corporate executives and government

officials have begun to realize that the greatest risk and biggest

challenge of the millennium bug now lie overseas.

 

In much of the world outside the United States, the response to

the millennium bug has been erratic or, in some places, nonexistent,

leading the U.S. government to believe that there will be a wide

variety of failures in telecommunications, transportation and electric

power in spots around the globe.

 

Although some of these technological meltdowns will barely be

felt--just another failure in the daily regimen of electronic

malfunctions--others threaten to wash up on American shores in the form

of spot shortages and price jumps, or even a mild recession.

 

In a world of interconnected computer networks, the reality is

that no nation is an island. Every domestic economy is a piece of the

worldwide network. The interconnections of politics, economics and

culture through the myriad electronic networks that have spread in the

last few decades have made the Y2K problem a truly global issue.

 

The computer glitch is perfectly matched to the last years of the

millennium--a time when the world is moving toward an increasingly

global economy in which geographic borders mean little and the sense of

time and distance is being erased through tightly woven technology.

 

"The biggest problem with the Year 2000 is not all the worries

about Jan. 1 and people buying groceries or generators in the United

States, but all the companies with dependencies around the world and

all the countries that could see serious problems," said Lou Marcoccio,

the Y2K research director for GartnerGroup, an information technology

consulting firm.

 

The interconnections touch mammoth "just-in-time" manufacturing

firms that depend on suppliers around the world, as well as small-time

investors who cringe at every burp in the distant Russian economy.

 

Banking, shipping, energy, aviation and communications are some of

the key components of global interconnection that are critical to both

developing and high-tech nations.

 

Across the sprawling operations of the Ford Motor Co., for

example, managers have spent the better part of two years trying to

understand all the connections between them and their 20,000 suppliers

spread around the world. On Ford's assembly line, where some parts

arrive just an hour or two before they are used, a failure by any of

the 1,700 suppliers of car parts has the potential to disrupt the line.

 

The company has contacted all of its direct suppliers, but it is

at a loss to figure the preparedness of the layers below them. "It's an

area of uncertainty," said Steven F. Turner, manager of Y2K supply

issues for Ford. "After a while, the numbers [of suppliers] just get

astronomical."

 

The U.S. Coast Guard has been grappling with the vexing issue of

how to ensure the steady flow of imports into this country. For

example, during the winter season even a slight delay in oil

shipments--half of which enter this country on foreign-flagged

vessels--could have a discernible impact on the U.S. economy, said Rear

Adm. George N. Naccara, the Coast Guard's chief information officer.

 

STATE DEPARTMENT ISSUES WARNING

 

The State Department has already warned travelers that their

trips could be affected by breakdowns in transportation systems,

hospitals, utilities and banks overseas. The department said that it

intends to post on its Web site the Y2K status of individual countries

by Oct. 1.

 

One of the more extreme scenarios of interconnected calamity has

been raised by the Defense Department, which has considered the

possibility that a computer malfunction could knock out the Russian

early warning system and prompt a nuclear launch.

 

The chances are admittedly small, but to be on the safe side the

Defense Department has already taken the unusual step of proposing to

share once-secret information with its former Cold War enemy. The

proposal would place American and Russian observers at a joint site in

Colorado Springs, Colo., already named the Temporary Center for Year

2000 Strategic Stability, to ensure no mistakes on Jan. 1, 2000.

 

"This is an international problem," Sen. Tom Harkin (D-Iowa) wrote

in a letter to President Clinton after the briefing. "Unfortunately,

Russia and other nations may lack the resources to fix the computers

that control their nuclear weapons--monitoring the problem is not

enough--the problem needs to be fixed in the U.S. and Russia. The

Pentagon should make every effort to reach out to the Russian

government and other governments to make sure all nuclear weapons

systems are Y2K compliant."

 

The progress overseas in repairing the billions of microprocessors

and lines of software code has been erratic at best, often typified by

inaction, inattention and a surprising lack of awareness of the Y2K

problem.

 

A World Bank survey published in January found that, of 139

developing nations, only 15% were taking concrete steps toward fixing

the problem. Nearly a quarter were aware of the glitch but were doing

nothing.

 

Many of those that have begun work have started so late that

there are questions whether they have the time to finish. The Kenyan

government, for example, established a Y2K steering committee only last

October, acceding to pressure from the private sector. The committee is

expected to present its final findings in April 2000--four months after

the New Year.

 

SURVEY SHOWS U.S. IS MOST PREPARED

The highly industrialized nations of North America, Europe and

East Asia have moved much faster to repair their vulnerable systems,

but they are also far more dependent on technology and thus more at

risk if there are failures.

The United States is by far the most prepared nation for 2000,

according to a survey released in March of nearly 15,000 companies in

87 countries conducted by GartnerGroup.

 

Canada, the Netherlands, Sweden, Australia, Switzerland and the

United Kingdom are not far behind in their repairs and will probably

face only isolated and minor failures due to the millennium bug,

according to the GartnerGroup survey.

 

Mexico, the United States' third-largest trading partner, is also

considered well advanced in its repair work, according to the survey.

The government, which controls the crucial energy and oil industries,

is expecting to complete its work this month.

 

But for every country that has advanced on its efforts, there are

many more that seem to be dragging their feet. Japan, for example, is

considered to be lagging in its Y2K repairs and could face a variety of

disruptions to government services and trade infrastructure, such as

harbors and airports, according to GartnerGroup.

 

John Koskinen, chairman of the President's Council on Year 2000

Conversion, said in an April report: "It now appears that a number of

countries will experience Y2K failures in key infrastructures such as

electric power, telecommunications, and transportation."

 

Venezuela and Saudi Arabia, which provide about a third of all

imported oil to the United States, are 12 to 18 months behind the

United States and are at risk of moderate power blackouts, telephone

disruptions, government service failures and air transport delays.

 

CHINESE FAR BEHIND IN PREPARATIONS

China--the United States' fourth-largest trading partner--is

considered so far behind that there is little hope of its avoiding

serious problems. The country's Y2K czar, Zhang Qi, ominously noted

recently that the country's electric power network has the furthest to

go of all agencies in repairing the glitch.

 

The Ministry of Finance has yet to receive funds that have been

budgeted for Y2K repairs, leading one official, Xiao Mingquan, deputy

director of China's State Quality Supervision and Testing Center for

Electronic Computers, to note that New Year's Eve could be "one dark

joke."

 

Edward Yardeni, chief economist of Deutsche Bank Securities Inc.,

believes that even with hundreds of billions being spent on Y2K, there

is a possibility the net result will resemble the 1973-74 oil

crisis--an apt analogy since information, like oil, has become the

lifeblood of the industrialized world.

 

Yardeni, who has consistently warned about the slow progress in

Y2K repairs, has projected a 45% chance of a severe global recession

lasting more than one year, with a slight prospect of power blackouts

and political upheaval. He sees a 25% chance of a modest six-month

recession.

 

The investment firm of Goldman, Sachs & Co. has likened Y2K more

to a worldwide blizzard that will hit suddenly but eventually pass,

leaving behind a cleanup that will linger for many years. They predict

not a recession but a slight drag on the global economy, akin to an

annoying cold that just won't go away.

 

The range of possibilities suggests that no one is entirely sure

what will happen. In many ways, it is a problem too big and with too

many variables to judge accurately.

 

Key industries, such as insurance, investments and banking, are

considered ahead of the pack in their repairs, with many well into

completing work on their critical systems, according to the

GartnerGroup report. Telecommunications and power utilities are not far

behind.

 

The figures tell only part of the story since they indicate the

overall status of industries, not the impact of specific pieces that

may falter on Jan. 1.

 

For much of the world, Y2K simply lacks the sense of urgency that

has built up in the United States over the last few years. The problem

is taken almost casually in some countries--just one crisis of many

that must be faced and survived.

 

"When the Y2K problem hits, some ATM machines will fail. Some

banks will close for some time, maybe a few weeks. Some hospitals will

slow their services but not stop," said Ghassan Qadah, 2000 project

leader for the Palestinian Authority.

 

It has been enormously difficult to focus the world's attention on

a problem for which there are no great honors or rewards to be had.

There is no harvest for this investment, and to finish in time only

means that the world will be as it once was.

 

The distractions of the conversion to the common European

currency last year and the Asian financial crisis have also kept many

countries from focusing on the 2000 glitch. Brazil, caught in the midst

of one of the worst financial crises in its history, has struggled to

commit any resources to repairing its Y2K problem.

 

"As the financial crisis worsens, all the attention is tuned to

it, and the millennium bug problem is set aside," says Marcos Rabstein,

coordinator of marketing relations of the National Industries

Confederation, which represents Brazil's most powerful industries.

 

In the developing world, the glitch barely registers in the

spectrum of existing problems, said Joyce Amenta, Y2K program

coordinator for the World Bank.

 

"They've gotten off to a very late start, and they've only

recently become aware that the Year 2000 could hurt their economies,"

she said, adding that the lack of focus in the developing world is

understandable. "There have been hurricanes, flooding, earthquakes, the

Asian financial crisis, civil war in Africa--those are their

priorities. To them, the Year 2000 problem is a flyspeck."

 

 

LACK OF TECHNOLOGY A MITIGATING FACTOR

In many ways, taking a global perspective on the problem can

create a deceiving vision of Y2K, since technology itself is spread

unevenly around the globe. The lack of technology in some countries and

its late adoption in others help mitigate against some of the global

meltdown scenarios painted by Y2K alarmists.

 

Vietnam, for example, has only 400,000 computers, private and

public, and more than half are older personal computers with outdated

microprocessors, the government says. It is almost entirely a cash

society with few private bank accounts. No one is worried about

automated teller machine failures since there are no ATMs.

 

Many of India's experts say that much of the 2000 problem is an

issue of timing. Those areas of the Indian economy that did computerize

did so late enough that they rely mostly on personal computers, not

mainframe computers--the source of many Y2K problems. "We missed the

mainframe bus," said S. Ramakrishnan, director of the Indian

government's department of electronics.

 

With 209 days left before Jan. 1, it has become an accepted

reality that some failures--from the silly to the serious--are

inevitable. The largest and best-prepared companies and government

agencies long ago came to that conclusion. They have begun to plan for

the worst, whether it happens or not.

One strategy--a kind of medieval approach--is called

"fortressing," the building of barriers around systems to protect them

from being contaminated by others.

 

In the Netherlands, the port of Rotterdam has already announced

that it will bar all ships that cannot prove their Y2K compliance

during the New Year's period, forcing them to journey elsewhere or wait

in the open sea.

 

China has taken a blunter approach to force compliance in its

airline industry by recommending that all airline executives be in the

air on Dec. 31.

 

"We won't force anyone to do it," said Zhao Bo, the Ministry of

Information Industry official in charge of Y2K problems. "We will leave

it up to the individual airlines."

 

But he added they "strongly urged" executives to fly on New

Year's Day. In China, that sort of "administrative guidance" doesn't

really amount to a choice.

 

ASSESSING THE KEY NATIONS

After a late start, Japan is racing to catch up on Y2K repairs.

Russia, meanwhile, is everyone's Y2K nightmare. C1

 

Ashley Dunn reported from Los Angeles, with contributions from

Times staff writers Maggie Farley in Shanghai; Dexter Filkins in New

Delhi; David Holley in Warsaw; David Lamb in Hanoi; Mark Magnier in

Tokyo; Dean E. Murphy in Johannesburg, South Africa; Maura Reynolds in

Moscow and Ann Simmons in Nairobi, Kenya. Also contributing were Times

researchers and correspondents: Miranda Cai, Maria de Cristofaro, Maher

Abu Khater, Batsheva Sobelman, Vanessa Petit, Christian Retzlaff, Janet

Stobart, Christine Winner, Marek Zielinski, Aracely Acosta, Diego

Aleman, Iva Drapalova, Paula Gobbi, Auriana Koutnik, David Aquila

Lawrence and Berta Thayer.

 

* * *

 

Y2K: WHO'S READY, WHO'S NOT

A worldwide survey of Y2K preparedness released in March by

computer consultant GartnerGroup found wide disparities in nations'

awareness of the problem and repair efforts. Some nations were not

included in the survey.

 

Level 1: Australia, Belgium, Bermuda, Canada, Denmark, Ireland,

Israel, the Netherlands, Switzerland, Sweden, Britain, U.S.

 

Level 2: Bahamas, Brazil, Chile, Finland, France, Germany,

Greece, Hungary, Iceland, Italy, Japan, South Korea, Mexico, New

Zealand, Norway, Peru, Portugal, Singapore, Spain, Taiwan, Thailand.

 

Level 3: Argentina, Armenia, Austria, Bulgaria, Colombia, Czech

Republic, Dominican Republic, Egypt, Guatemala, India, Jamaica, Jordan,

Kuwait, Malaysia, Panama, Poland, Puerto Rico, Saudi Arabia, South

Africa, Sri Lanka, Turkey, United Arab Emirates, Venezuela, Yugoslavia.

 

Level 4: Afghanistan, Bahrain, Cambodia, Chad, China, Costa Rica,

Ecuador, El Salvador, Ethiopia, Fiji, Haiti, Indonesia, Kenya, Laos,

Lithuania, Morocco, Mozambique, Nepal, Nigeria, Pakistan, Philippines,

Romania, Russia, Somalia, Sudan, Uruguay, Vietnam, Zaire, Zimbabwe.

 

Key:

 

Level 1: Mostly isolated and minor incidents in utilites,

communications and financial services, for example, but may include

moderate disruption in some government services.

 

Level 2: There will be isolated disruptions in utilities and

transportation, but they will be moderate rather than minor. Possible

severe interruptions in some government services.

 

Level 3: Moderate power interruptions, such as brownouts, along

with moderate air traffic problems and possible severe loss of some

government services.

 

Level 4: Widespread or severe problems predicted in utilites,

communications and imports/ exports, and especially in air traffic and

government services.

 

Source: GartnerGroup