Y2K effects on economy are ambiguous says Reserve Bank

By Adam Gifford

The Reserve Bank says its assessment that medium-sized businesses could be the worst-affected by the year 2000 computer bug was based on anecdote rather than research.

"It's a risk assessment rather than a survey or a conclusion based on reasoning," said deputy governor Rod Carr.

"We know small business is not as dependent on computer systems. We know large corporations are working on very hard on their Y2K problems and have put resources in to do so.

"The mid-range companies are big enough to have inventory systems and payment systems and are at risk of having some element malfunction because of embedded systems or software."

He said much of the Reserve Bank's information was "anecdotal from the banks."

"We, as supervisor, do not go line-by-line through loan portfolios. The story from the banks is they are raising the issue in ordinary credit discussions with customers because they lend to them on an ongoing basis."

Dr Carr said while there is some risk, a lot must happen before a company fails because some of its systems can't handle the switch to 2000.

"To have a company fail, the problem must be at a critical time. It must cause irretrievable loss or debt.

"Very few businesses failed as result of the Auckland power crisis. Some had a poor period of trading and some are still carrying extra debt. Undoubtedly some went out of business, but some would anyway."

He said the economic effect of Y2K was ambiguous, and advanced purchasing as people brought spending this side of Christmas could offset any decline after.