CIA latest to predict Y2K supply-chain ills

The lack of year 2000 preparations at many small to medium-size businesses located overseas may lead to supply-chain problems for larger enterprises, especially those dependent on "just-in-time" distribution, a CIA official testified at a congressional hearing last week.

Lawrence K. Gershwin, the CIA's national intelligence officer for science and technology, also said intelligence officials expect a "safe havening" in the US of financial assets by some foreign governments and firms.

Gershwin, testifying before the US Senate's Special Committee on the Year 2000 Technology Problem, said Russia, Ukraine, China and Indonesia are likely to experience "significant" Y2K failures. Germany and Japan started late with their Y2K repairs and are also at risk of failure, he said.

Gershwin said the CIA was "highly confident" that Y2K failures won't lead to the inadvertent launch of a ballistic missile and that the chance of a nuclear accident on the scale of Chernobyl is "extremely low."

Y2K isn't expected to produce a "significant" disruption in oil supplies, Gershwin said, but breakdowns in foreign infrastructures could affect U.S. interests overseas, global businesses and military bases.

Department of Commerce officials also testified. There is enough time for governments and businesses "to put in place the necessary structure to avoid serious disruptions to the world's trading system," said Michael J. Copps, assistant secretary for trade development.

Too rosy?

But another witness, Nick Gogerty, an analyst at London-based International Monitoring, said the optimistic Y2K message being put forth by US officials was "potentially reckless" and could prompt some to disregard the Y2K risk.

Gogerty said he expects that the Y2K problem will lead to $US1.1 trillion in damages worldwide, separate from any litigation and insurance costs, and that the US share will amount to about $115 billion. He also said he believes Y2K will lead to delays in global trade.

But the most serious risk posed by Y2K will be to financial systems. Echoing the CIA's assessment, Gogerty said a "flight to quality" from traditional assets could lead to increased demand for gold and the US dollar.

Humanitarian issues are another significant concern. James Moody, CEO of Washington-based InterAction, a group that represents 160 relief, development and refugee agencies, said the Y2K problem has the potential to seriously disrupt essential services. "Unless prompt, coordinated action is taken," Moody said, the US and other wealthy countries "will come under significant international and internal criticism."

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