Y2K Bug Poses Biggest Risks Outside U.S.

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.

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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 transporation, but they will b4e moderate rather than minor. Possible severe interuptions in some government services.

Level 3: Moderate power interuptions, 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