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S. HRG. 106±343 Y2K & RUSSIA: WHAT ARE THE POTENTIAL IMPACTS AND FUTURE CONSEQUENCES? HEARING BEFORE THE SPECIAL COMMITTEE ON THE YEAR 2000 TECHNOLOGY PROBLEM UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS FIRST SESSION ON UNDERSTANDING HOW THESE Y2K POTENTIAL FAILURES, BOTH IN THE SHORT AND LONG TERM, MAY IMPACT ON CURRENT U.S. POLICY INITIATIVES AND WHAT WE CAN DO TO ADDRESS THESE POTENTIAL PROBLEMS WITH RESPECT TO RUSSIA SEPTEMBER 28, 1999 Printed for the use of the Committee ( Available via the World Wide Web: http://www.access.gpo.gov/congress/senate U.S. GOVERNMENT PRINTING OFFICE 62±345 CC WASHINGTON : 2000 For sale by the U.S. Government Printing Office Superintendent of Documents, Congressional Sales Office, Washington, DC 20402 VerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 W:\DISC\62345 txed02 PsN: txed02 SPECIAL COMMITTEE ON THE YEAR 2000 TECHNOLOGY PROBLEM [Created by S. Res. 208, 105th Cong., 2d Sess. (1998)] ROBERT F. BENNETT, Utah, Chairman JON KYL, Arizona CHRISTOPHER J. DODD, Connecticut, GORDON SMITH, Oregon Vice Chairman SUSAN M. COLLINS, Maine JOHN EDWARDS, North Carolina TED STEVENS, Alaska, Ex Officio DANIEL PATRICK MOYNIHAN, New York ROBERT C. BYRD, West Virginia, Ex Officio ROBERT CRESANTI, Staff Director T.M. (WILKE) GREEN, Minority Staff Director (II) VerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 W:\DISC\62345 txed02 PsN: txed02 CONTENTS STATEMENT BY COMMITTEE MEMBERS Robert F. Bennett, a U.S. Senator from Utah, Chairman, Special Committee on the Year 2000 Technology Problem ............................................................... 1 Christopher J. Dodd, a U.S. Senator from Connecticut, Vice Chairman, Spe- cial Committee on the Year 2000 Technology Problem .................................... 3 CHRONOLOGICAL ORDER OF WITNESSES Hon. Richard G. Lugar, a U.S. Senator from Indiana .......................................... 6 John R. Beyrle, Deputy for the Ambassador at Large and Special Advisor to the Secretary, Department of State ............................................................... 14 Dr. Edward Warner, III, Assistant Secretary, Strategy and Threat Reduction, Department of Defense ........................................................................................ 17 Kenneth Baker, Principal Deputy Assistant Secretary, International and Na- tional Security, Department of Energy .............................................................. 22 Dr. William K. McHenry, Associate Professor, McDonough School of Business, Georgetown University ........................................................................................ 32 Richard A. Conn, Jr., U.S.-Russia Business Council, Partner, Latham & Wat- kins ........................................................................................................................ 35 ALPHABETICAL LISTING AND MATERIAL SUBMITTED Baker, Kenneth: Statement .......................................................................................................... 22 Prepared statement .......................................................................................... 43 Bennett, Hon. Robert F.: Opening statement ........................................................................................... 1 Prepared statement .......................................................................................... 49 Beyrle, John R.: Statement .......................................................................................................... 14 Prepared statement .......................................................................................... 50 Conn, Jr., Richard A.: Statement .......................................................................................................... 35 Prepared statement .......................................................................................... 54 Dodd, Hon. Christopher J.: Statement .......................................................................................................... 3 Prepared statement .......................................................................................... 60 Lugar, Hon. Richard G.: Statement .......................................................................................................... 6 Prepared statement .......................................................................................... 61 McHenry, Dr. William K.: Statement .......................................................................................................... 32 Prepared statement .......................................................................................... 64 (III) VerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 W:\DISC\62345 txed02 PsN: txed02 IV Page Warner III, Dr. Edward: Statement .......................................................................................................... 17 Prepared statement .......................................................................................... 77 VerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 W:\DISC\62345 txed02 PsN: txed02 Y2K & RUSSIA: WHAT ARE THE POTENTIAL IMPACTS AND FUTURE CONSEQUENCES? TUESDAY, SEPTEMBER 28, 1999 U.S. SENATE, SPECIAL COMMITTEE ON THE YEAR 2000 TECHNOLOGY PROBLEM, Washington, DC. The committee met, pursuant to notice, at 10:02 a.m., in room SD±192, Dirksen Senate Office Building, Hon. Christopher J. Dodd (vice chairman of the committee), presiding. Present: Senators Bennett, Dodd, and Lugar. OPENING STATEMENT OF HON. ROBERT F. BENNETT, A U.S. SENATOR FROM UTAH, CHAIRMAN, SPECIAL COMMITTEE ON THE YEAR 2000 TECHNOLOGY PROBLEM Chairman BENNETT. The committee will come to order. We ap- preciate your being here this morning. Senator Dodd, the vice chairman of the committee, will be chairing the hearing, and he is on his way. Prior to his arrival, I would like to make a comment or two about the subject of today's hearing. A serious social, economic, and political crisis began when Russia devalued the ruble and then defaulted on its debts. That was in August 1998. Little work has been done to investigate the long- term consequences that Y2K would bring to a Russia already on the edge. That, of course, troubles this committee since Y2K fail- ures in key infrastructures such as power, banking, telecommuni- cations, and defense could have some serious negative impacts on the stability of the Russian economy and on their political environ- ment which already is wrought with enough problems. The international monetary fund announced last Friday that it would offer special loans to countries suffering serious economic damage from Y2K. The IMF certainly hopes that this financial as- sistance won't be needed, but they say in their statement: ``There are uncertainties, and the potential consequences for international trade and growth of possible interruptions to production and ship- ment may be significant.'' I think these uncertainties and potential consequences resulting from Y2K apply to Russia as much as they do to any nation. Now, Russia is not as highly networked and interconnected as is the United States, but it still relies on information systems and microchips. In fact, the information systems that survived the So- viet Era and remain in use are extremely critical. As many as 4,000 Soviet-era mainframes are estimated to support the oper- ation of Russia's industrial and defense enterprises. It is believed (1) VerDate 20-MAR-2000 08:48 Mar 31, 2000 Jkt 010199 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 W:\DISC\62345 txed02 PsN: txed02 2 that several hundred million dollars would be needed to repair these systems. The failure, disruption or corruption of these systems in a short span of time could create a unique and unexpected challenge to the economy. In the short term, the shock from serious Y2K failures could exacerbate Russia's downward economic spiral. Since such an event would unquestionably affect U.S. policy, we must proactively consider how we should respond to these failures if and when they should occur. From a long-term perspective, no one knows what the impact of Y2K inefficiencies will mean for the Russian economy as a whole. We must decide soon what our foreign policy will be with respect to Y2K failures. We cannot engage in diplomatic shell games until November 1999 and then glibly announce the U.S. foreign policy on Y2K. What is more, I fear that whatever policy the White House has arrived at may crumble when the first CNN footage hits the air, because very often the CNN footage determines the policy. What should U.S. policy be with respect to foreign Y2K failures? How will we prioritize national security, the needs of our allies, the needs of critical trading partners, and of course humanitarian needs? These will be very difficult decisions, and there will be no time for ``spinning'' decisions. Different decisions will demand prompt and careful attention. The U.S. does not have the resources to save the world. Indeed, if it weren't for the rapid actions of a member of this committee, Senator Stevens, who happens to double as the chairman of the Ap- propriations Committee, we would not have had the emergency funds to meet emergency requirements here at home. It is vital to remember that Y2K problems unfold over time. They do not all occur on January 1st. We, here in Washington, have ex- pended a lot of effort to examine the immediate impact of Y2K, from sharing nuclear information