'VII. Latin America: Clueless
Y2K El Niño
According to the October 28 issue of The Wall Street Journal, Latin America faces
more turmoil in 2000 because governments and firms in the region have ignored Y2K.
A large part of the corporate world was also slow to address the Year 2000 problem
issue, but widespread publicity of the problem's seriousness has prompted many
companies to implement crash programs to come to terms with it. Analysts say that
while the Year 2000 problem is no less serious a problem for Latin American
governments, the level of awareness among many public officials has been
disturbingly low.
According to Carlos Guedes, Deputy Controller of the Inter-American Development
Bank, "One thing misleading governments in developing countries is they think that they
won't be as affected. They may not have the most modern systems, but what they have is
basic and critical." Brazilian and Mexican programmers have been lured by high salaries
to work in the United States. If governments fail to fix their revenue collection systems,
the resulting turmoil will be bad for Latin Americans, and could even trigger another
global financial crisis.
Brazil:
Dead Last
According to Gartner Group analyst Jim Cassell, half of all Latin American enterprises
will suffer damage from the Year 2000 computer problem. Cassell said Gartner
conducted a study in 1998, querying 16,000 enterprises worldwide on their awareness of
the Year 2000 problem. Not surprisingly, the most prepared nation is the United States.
Other countries with a high degree of readiness include Canada, Australia, South Africa,
Israel and the United Kingdom. At the bottom of the list is Brazil, the largest economy in
Latin America. Venezuela and Argentina round out the unholy trinity of least-prepared
nations. Gartner says that Mexico is the only Latin country with a comprehensive plan for
addressing Y2K issues. Just about the only good news in the region is that Latin banks
are working hard to get ready.
Brazil:
Disclosure And
Deadly Deadline
On May 22, 1998, the Rio de Janeiro Securities & Exchange Commission (CVM) issued
a communiqué which established December 31, 1999 as the deadline by which public
companies, pension funds, government-subsidized companies, and clearing house
organizations must fix their computers for Y2K. According to the Bridge News story,
CVM will impose daily fines on those that don't fix their computers. It wasn't clear from
the report, but I have to believe that the fines will be slapped on companies before
January 1, 2000 if they fail to make good progress. The CVM decree ordered all the
companies under its jurisdiction to provide quarterly financial statements containing the
following information: 1) how much was invested to debug the systems, 2) technical
measures adopted, and 3) possible risks to the business if the situation is not fixed by the
deadline.
This information must be certified by an external auditing firm. One critic of the plan said
that the fines weren't severe enough and proposed that CVM should threaten to suspend
the license to trade in the stock market of troubled companies. As of late May 1998, no
national study of Y2K had been conducted in Brazil.
Brazil:
No Dial Tone
Now, consider the following analysis of Telebrás, the Brazilian phone company. It was
written by Merrill Lynch's telecommunication services analysts for Latin America in June
1998:
The most important question for us is how the issue will play out in Brazil. We believe
that most of the Telebrás system is woefully "uncompliant" at this stage. First of all,
the systems are antiquated. Second of all, attentions have been focused elsewhere
lately [i.e., privatization]. Third current management will not even be around in the
year 2000. The buyers of the government's stake in each of the subsidiaries will have
less than a year-and-a-half to sort out the issue. There will be other priorities to
contend with during that time, notably upgrading and building out the network ahead
of the competition. Nevertheless, they will need to replace much of the current
infrastructure anyway, including the billing system, and thus will be starting with a
clean slate.
Brazil is one of the largest economies in the world. It is an important manufacturer of
commodities, components, and grains. If Brazil's telecommunications lines malfunction
during 2000, this alone could cause a disruption in the global just-in-time production
system severe enough to trigger a global recession.
Mexico:
No Action
According to the October 30, 1998 issue of The Wall Street Journal Interactive
Edition, the Mexican government is taking Y2K very seriously, and is racing ahead of the
private sector in preparations. Year 2000 computer work began as early as 1997, and in
June 1998 President Ernesto Zedillo set up the National Commission for Computer
Conversion, headed by Carlos Jarque, president of the National Statistics Institute,
known as INEGI.
Under the government plan, supervised by the Comptroller General's Office, each
ministry is responsible for its own area. INEGI already has completed its conversion
work. The central bank has 171 priority systems, of which 103 are already updated.
Work is expected to be finished by the end of this year, according to a bank document.
The Mexican Stock Exchange reportedly started work in February 1997, and had
advanced 65% to 70% by late August 1998.
On the other hand, more than two-thirds of the private sector enterprises that use
computers have yet to act. A survey conducted by INEGI showed that:
1) 34% of the 3.2 million businesses in the country--excluding the financial sector--use
computers;
2) a third have networks and a quarter of those exchange information electronically with
suppliers and customers;
3) all large businesses, two-thirds of medium-sized businesses and one in three small
businesses use computers.
But while companies are aware of Y2K, very few had done anything about it by the end
of August 1998. Most of the large manufacturing companies have made some moves, but
overall, fewer than a third have begun working on software and less than a fifth on
hardware adjustments or replacements, according to the survey.
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