Y2K problem: Developing countries could be vulnerable to disruption caused by "millennium bug1

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Page 233

The Y2K problem is a legacy of a computer programming shortcut used in the 1960s and 1970s to save computer memory. Software programmers used two digits instead of four (for example, 99 instead of 1999) to identify the year in the date field in software code. As a result, many computer programs and systems may fail or generate errors as they misinterpret 00 as 1900 instead of 2000.

Government agencies and businesses around the world have spent considerable resources to assess the extent of the problem in their systems and to fix and test vulnerable systems. Despite these efforts, the World Economic Outlook notes, considerable uncertainty remains about the extent of the remaining problem. Many governments, public sector entities, and private companies, particularly small and medium-sized enterprises, have not finished-or in some cases, even begun-the remediation process. In addition, it is almost impossible to ensure that systems are fully protected from the bug in an era when computer and information systems are extensively interconnected. Because of these uncertainties and others regarding anticipatory behavior-such as the hoarding of goods and currency and the avoidance of travel-estimates of the Y2K problem vary widely and are subject to wide margins of effort. Thus, the IMF staff study notes, the projections in the World Economic Outlook do not attempt to incorporate any estimate of these effects. However, it is possible to speculate in qualitative, rather than quantitative, terms about the potential macroeconomic consequences.

Negative supply shock

The impact of the millennium bug, the World Economic Outlook suggests, may best be compared to that of a negative supply shock, such as a natural disaster, since a portion of the existing capital stock in the form of hardware and software will become temporarily unusable and, in some cases, obsolete. Because the problem has been foreseen, there has been some time to attempt to reduce its potential impact. But because it is a global shock, resources and expertise to repair problems could become severely constrained early in 2000.

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Some businesses, the IMF staff study notes, particularly insurance companies and other financial services firms that make projections about the future, began efforts to make their systems Y2K compliant more than 10 years ago, partly because...

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