[asia-apec 921] was this issue ever raised at APPA?

[Roberto Verzola]

Was the millennium bug and how it would interact with the global
financial crisis ever discussed at APPA?

Roberto
---------
Second Opinion

Needed: strategies for survival
by Roberto Verzola
Philippine Journal
Oct. 27, 1998


In my Sept. 15 column, I questioned the over-optimistic growth
forecasts of NEDA and IMF economists for the coming years. I wrote
that machine failures due to the Year 2000 software problem (also
called the millennium bomb, or M-bomb) will instead lead to widespread
disruptions in the technological infrastructure of the global
financial and industrial system. Given the sensitivity of this system
today even to minor tremors, the simultaneous jolts and shocks
triggered by the M-bomb will lead to a major nosedive and even a
possible crash of the crisis-ridden system.

That column was based on a longer article entitled "The Millennium
Bug: A Time Bomb in the Heart of Industrial Economies", which I had
released earlier. It was published by the Journal as a four-part
series on Oct. 19-22.

I've come across two very recent articles on the M-bomb which confirm
such a scenario.

                   Popular Science on the M-bomb

The first is an article by William Phillips on the Oct. 1998 issue of
the Popular Science magazine, entitled "The Year 2000 problem: will
the bug bite back?" Its "worst-case" M-bomb scenario:

"Your credit card bill is suddenly 99 years overdue, you own another
century's worth of interest on your home.... Phone lines are busy, and
e-mail is down because the electricity is out. You're under a
boil-water alert, and the shelves at the local supermarket are bare.
And oh yeah--the money in your bank account disappears faster than it
did last time you visited Las Vegas."

The PS article adds that "major U.S. banks are well along" their
software conversion efforts, but the small banks are "lagging".
Ominously, however, it also reminds its readers to "keep copies of old
financial statements--along with copies of credit card, investment,
loan, and tax records--just in case."

On the other hand, a computer consultant interviewed for the article
is "preparing for the worst," because he expects "global chaos lasting
as long as six months."

Popular Science describes how computer consultant Bob Reinke is
preparing: "he's stocking up on food and water, expects to be without
electricity for days, maybe weeks, and plans to take much of his money
out of the bank."

                      Fortune on the M-bomb

The second article is an interview with Ed Yardeni, chief economist
for Deutsche Bank Securities, which appeared in Fortune Magazine, Oct.
12, 1998 issue.

Like most who take a cursory look at the problem, Yardeni admits he
initially underestimated its impact: "After several weeks, I concluded
that there was a 30% chance this could cause a global recession as bad
as the 1973 to 1974 downturn. Since then, I have raised the odds
several times, most recently to 70%. I'd be delighted to back off, to
learn that more progress has been made. But the way things are going,
as we get closer to Jan. 1, 2000, I may raise the odds again."

Here are more of Yardeni's warnings:

- The U.S. manufacturing system can bog down if the M-bomb causes
  failures in Brazil, Korea or other sources of U.S. production
  components.
- The M-bomb will extend the bear market (ie, falling stock prices)
  into the year 2000.
- The Asian financial crisis and M-bomb combination may end up in
  a global depression.
- Most CEOs don't understand technology. "They just don't get it."

The Popular Science article failed to, but Yardeni in Fortune
correctly made the connection between the M-bomb and the Asian
financial crisis. (He is too Euro-centered though to call it a global
crisis.)

However, he missed a third factor: end-of-the-millennium mass
psychology. The hysterical doomsday fears of millenarians can mutually
reinforce valid public concerns about the financial crisis and the
M-bomb, creating a truly explosive combination. I explained this
explosive combination thoroughly in last week's four-part series.

               What do you do before a typhoon?

The global crisis is like an approaching supertyphoon. Already, the
strong winds and the rains are upon us. But the eye is not yet here
and it is going to get worse. The eye of the typhoon will hit us in
the year 2000, when the M-bomb triggers millions of machine failures
that will widely disrupt the global financial and industrial system.
It can suck the world into deep recession.

Clearly, the coming years are going to be stormy for our economy and
our nation.

When a typhoon is coming, we don't bring out the picnic basket or
throw a party for neighbors, as economists of the NEDA and the IMF
would like us to do. We instead suspend regular work and other
activities; we stock up on supplies; we look at the most vulnerable
and help them prepare for the worst.

                     Survival strategies

As soon as possible, we need to switch from flamboyant expansive
strategies to prudent survival strategies. We need to shift our
priorities:

- from maximizing gain to minimizing risk;
- from efficiency to security and reliability;
- from competition to cooperation;
- from luxurious non-essentials to affordable basic needs; and
- from profit-orientation to service-orientation

Government policies today are the exact opposite, a legacy of the
flamboyant and expansive policies of the Ramos and earlier
administrations.

Look at our rice and corn lands, the core of our food security.
Businessmen continue to turn them into golf courses or to bury them in
cement to build highways, subdivisions, commercial centers, and
industrial parks. What is happening to our watersheds? Persistent
logging and expanding mining operations are destroying them at an
increasing pace. The government has just approved the Mining Act
implementing rules and regulations, which are going to open the
floodgates to more destructive mining operations in our watersheds,
practically all of them covered by mining claims and foreign FTAA
mining applications. A Journal item two days ago reports a school in
Davao being razed to give way to a parking lot for a Gaisano shopping
mall. Parking instead of elementary education? Our officials need a
wakeup call very badly.

                   Abnormal times: signal no. 5

Crisis can bring out the best--as well as the worst--in a person, a
people, and a nation. It is in abnormal times like these when
heroes--as well as villains--emerge, as the people's leaders respond
differently to the challenges of the historical moment.

It will be tragic if President Estrada fails to recognize this looming
crisis and if he, instead, blindly heeds the advice of his incredibly
over-optimistic advisers and prepares for a big party while a terrible
supertyphoon approaches.

Mr. President, we need those survival strategies to help our country
confront a signal number five typhoon!