Final cost of Y2K repairs may top $114 billion

The Y2K problem isn't expected to affect overall US economic growth, although the software glitch may have some short-lived effects on the economy if businesses and consumers stockpile goods in this quarter, the US Department of Commerce said yesterday.

In a long-awaited reported on the year 2000 problem's impact on the US economy, Commerce Department officials said the bill paid by government and business to repair the computer glitch will top $114 billion by 2001, but they also said Y2K spending has passed its peak.

"The greatest cost to our economy is behind us," said Commerce Secretary William Daley.

As early as 1995, business and government spent almost $5 billion on Y2K repairs. In 1998, that figure reached a high of $32 billion but was expected to decline to $29 billion this year. In 2000, Y2K spending is estimated at $5.2 billion and just over $500 million in 2001.

The continued spending on Y2K in 2000 and 2001 "is because some companies and organisations have not yet dealt with the problem," Daley said.

The study said the business sectors most prepared for Y2K are those that provide critical services, energy, finance, telecommunications and transportation. Less prepared are health care, small businesses and education. "It will be surprising if Y2K problems in these areas do not make some news in early January," said Daley.

Daley said the US can also start looking for a "kind of Y2K dividend" now that companies can "once again put their capital and thousands of information technology specialists to work creating new products and solving new problems and not having to deal with the old ones."

The nation's major foreign trading partners "are generally as well prepared as we are," said Robert J. Shapiro, the department's undersecretary for economic affairs. Moreover, a considerable proportion of US trade occurs among and within multinational firms, "which have very strong incentives to keep their supply lines operating," he said.

Daley and Shapiro both cautioned that the unique nature of Y2K made it difficult to predict its economic impact. But in reviewing government and corporate spending, they said businesses and agencies had prepared for Y2K as they would any other business problem.

"We are exploring new territory," said Daley. "We have no historic data to draw upon; we can't be sure how the public will respond to real or perceived problems."

While Y2K isn't expected to affect overall US growth for this year and 2000, it could influence the pattern and timing of this growth, said Shapiro, especially if companies increase their year-end purchases to build inventories. If that happens, the effect of that buying could be offset in the first quarter of next year.

There could also be shifts in consumer and investor behavior affecting prices and profits, but "thus far, we have not seen any evidence of that," Shapiro said.

"We can be certain of one thing: Y2K will soon be upon us and it will soon be behind us," he said. And the "American economy will thrive in part because American businesses and government have taken this issue seriously for a long time."

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