CIA says Y2K may disrupt global supply chains

The lack of year Y2K preparations at non-US businesses may lead to supply-chain problems for larger enterprises, especially those dependent on 'just-in-time' distribution, a CIA official has told the US Congress.

The lack of year 2000 (Y2K) 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 Central Intelligence Agency official testified at a congressional hearing today.

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

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 in 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 inadvertent launch of a ballistic missile, and said the chance of a nuclear accident on the scale of Chernobyl is "extremely low."

The year 2000 date rollover isn't expected to produce a "significant" disruption in oil supplies, said Gershwin, but breakdowns in foreign infrastructures could impact US interests overseas, including global businesses and military installations. Large companies may experience delays and disruptions due to failures in the systems of key business partners, he said.

A US Department of Commerce official, also testifying, said there was 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, an assistant secretary for trade development.

But another witness, Nick Gogerty, an analyst at the London-based firm 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 Y2K problem will lead to US$1.1 trillion in damages worldwide, separate from any litigation and insurance costs. The US share of these damages will amount to about $115 billion, he estimated. He believes Y2K will lead to delays in global trade.

However, the most serious risk posed by Y2K will be on financial systems, Gogerty predicted. Echoing the CIA's assessment, he 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, the CEO of InterAction, a Washington-based group that represents some 160 relief, development and refugee agencies, said that the Y2K problem has the potential to seriously disrupt essential services.

Moody said the US hasn't done enough to address this problem. "Unless prompt, coordinated action is taken," the US and other wealthy countries "will come under significant international and internal criticism."

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