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24 August 1998
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Govt preparing to gauge Y2K threat
Economists at odds over possibilities
by Adam Gifford
With fewer than 500 days to go until the end of the century, the Government is slowly forming an official response to the Year 2000 problem.
The task force chaired by former IBM executive Basil Logan will this week hand its report and recommendations to a cabinet sub-committee of Bill Birch, Maurice Williamson and Tuariki Delamere.
Meanwhile, the Treasury is also seeking advice from outside experts on possible economic and other direct social impacts of the Year 2000, known in jargon as Y2K (Y for year, K for thousand).
Tender documents have just gone out, with work due to be completed by the end of October.
David Galt, the chief analyst of the Treasury’s policy co-ordination and development unit, said the material would be incorporated into the next round of forecasts, though a special report was unlikely.
"Ideally we want people with some knowledge of these particular IT issues to feed into Treasury’s own modelling work," Mr Galt said.
He said they were looking for "a combination of best judgements", as well as any hard data which might be available from here or overseas.
Economists considering tendering for the Treasury work say one place to start will be the survey data collected by the task force.
Because no clients have so far commissioned the work, most economists have still not progressed past the anecdotal level of information gathering.
"It’s a question of how much information is out there. It has become an issue but it’s speculative until the research is done," said one, who did not want to be named.
Many economists are working off predictions by Ed Yardeni, the chief economist for the European-based investment banker Deutsche Morgan Grenfell, that the Year 2000 bug now has a 70 percent chance of causing a global recession at least as serious as that caused by the 1973 oil shock.
In an analysis recently published ["Year 2000 problems to cause global recession" - 28 July 1998 - available under Media Releases] on the Infometrics Web Site, economist Tony Booth said Dr Yardeni’s estimate of a 3 to 4 percent drop in real output in the United States "seems unnecessarily pessimistic".
Unlike the oil shock, there will be alternative sources of supply.
"The cost of obtaining goods and services in the event of Y2K failures might be higher than normal, but they will usually be available. In addition, contingency plans can be developed to cope with shortages because the problem is well recognised", Mr Booth said.
He said the Year 2000 problem was likely to result in significant systems failure in, or before, 2000.
"An interruption of the free flow of information, goods and services is likely to result in some bankruptcies and reduced output growth. However, the loss of some services is not unexpected and alternatives can be organised in advance, differentiating Year 2000 from, say, the oil shocks of the 1970’s," Mr Booth said.
Across the Tasman, the analyst and broking firm Macquarie Equities has also taken issue with Dr Yardeni’s predictions.
The company said the Year 2000 problem would cut Australian corporate profits by 3 percent in 1999 - 2000 and economic growth would also be affected.
Extrapolating on data supplied by listed firms to the Australian stock exchange, it estimated national spending on Year 2000 at $A5 billion, about 1 percent of the GDP.
However, the negative impact would be partly offset by productivity gains that flowed from system upgrades and new equipment.
Meanwhile, Basil Logan said his task force had surveyed all central Government agencies, key infrastructure providers and 600 private sector organisations, 100 with more than 50 employees and 500 with less. "What we did find from very early on was that awareness does not necessarily translate into understanding", Mr Logan said.
He said many company heads said the survey had given them a good pathway to evaluate their organisations.