Asia, Eastern Europe flunk Y2K test

Business Asia, Sept 13, 1999

South East Asia and Eastern Europe are the emerging market regions most vulnerable to millennium bug disruption, Credit Suisse First Boston (CSFB) says.

The investment bank also said its survey of 250 companies in 18 emerging market countries reinforced concern that fears about the Year 2000 (Y2K) computer glitch could lead to another credit scare for emerging markets.

"Aggregated data suggest that Eastern Europe and South East Asian markets are most at risk from critical system failure," it said in a report.

The millennium bug may cause some older computers to mistake 2000 for 1900 because of a programming shortcut, and tests show some systems may crash or cause errors at the turn of the year.

CSFB said Asia as a whole scored 24.5 out of a possible 35 points for Y2K preparedness, with Latin America close behind on 24.3 points and Eastern Europe lagging with only 18.3 points.

However, these totals masked significant differences within regions. While South Korea and Singapore came top with 31 and 30 points respectively, Thailand had the second-worst score of 13 and Malaysia, Indonesia and the Philippines scored 18 or less.

Eastern Europe fared very poorly, with the Czech Republic bottom of the global list on 12 points, Poland third-last with 15 and regional leader Hungary scoring only 20.

In Latin America, Argentina took global third place with 27 points, with Brazil on 24 and Mexico on 22.

The report highlighted transport and utilities as the least prepared sectors in global emerging markets, and banking and financial services as the most ready for the millennium bug.

It said almost all the banks canvassed expected higher-than-normal cash withdrawals around the end of the year, and most industrial companies expected to raise inventory levels or find ways to combat potential disruptions in supplies.

"Against a background of widening corporate spreads in the United States ... the cost of financing this liquidity drain could be large," it said.

"A large credit crunch could start hitting the markets, much like we saw in late summer and autumn of last year. However, the silver lining is that ... policy makers would probably respond with looser monetary policy, alleviating some of the shorter-term liquidity imbalances."