mr. mcdonough gives his perspective on the year 2000 problem and the challenges it poses remarks by the president of the federal reserve bank of new york, mr. william j. mcdonough, before the regional y2k meeting for financial regulators in the asia / pacific region, held in sydney on 19 / 10 / 98. i am delighted to be here today at the first of several regional forums on the year 2000 problem that the joint year 2000 council is organizing. as an original sponsor and ex officio member of the council, i am especially pleased that it has been successful in rapidly organizing today ’ s events to coincide with the international conference of bank supervisors meetings. this gathering provides another example of how financial market supervisors and regulators such as yourselves are leading the way in tackling this issue around the world. in my remarks today, i will provide my perspective on the year 2000 problem and the challenges it poses. my experience with the issue draws first on my role at the federal reserve bank of new york, where we are addressing year 2000 challenges as a central bank, as a bank supervisor, as a payment system operator and as a business much like any other business. internationally, i became involved with the issue through the g - 10 committee on payment and settlement systems and spoke out about the need for payment system operators worldwide to address the year 2000 problem. more recently, on the basle supervisors ’ committee, i have been learning about the year 2000 issues that confront bank supervisors around the globe. scope simply put, i do not think it would be possible to overstate the importance of the year 2000 problem as an issue for the financial markets. naturally, the tendency in these turbulent times is to focus on day - to - day concerns, and to leave future problems to be dealt with later. this tendency must be resisted strongly if we are to succeed in addressing the year 2000 problem. i say this because the year 2000 problem is an issue for every country, firm, organization, government agency, bank and piece of critical infrastructure in the world. if the year 2000 problems that exist within software programs and embedded computer chips are not repaired by january 1, 2000, the affected systems will cease to function or will malfunction. those firms that have checked for year 2000 problems overwhelmingly have found that their systems were affected and would not have functioned normally in the year 2000 without being fixed. moreover, the efforts of firms around the world have demonstrated that while the extent of the year 2000 problem varies, no

in norwegian labour costs has been around 5 - 6 per cent in recent years. this is 1½ - 2 percentage points higher than among our trading partners. the higher interest rate level in norway reflects this fact. at the moment, there is no clear indication of a marked slowdown in the norwegian economy. the price of oil remained high for a long time, despite the international downturn, but fell more than usd 3 yesterday, 24 september. the price of aluminium has fallen somewhat but is still high compared with the average price in recent years. the year - on - year increase in the export of metals, excluding iron and steel, was 0. 7 per cent in the second quarter of 2001. the price of fresh salmon remains at the same level as in the last half of the 1990s. exports of fish and fish products increased by 3. 9 per cent from the second quarter of 2000 to the second quarter of 2001. due to international developments, the uncertainties and the downside risks are now greater for many export industries. the krone has appreciated recently measured against our trading partners ( trade - weighted exchange rate index ). this partly reflects more than 20 per cent appreciation against the swedish krone since spring 2000. measured by the trade - weighted exchange rate index, the krone is now about 2 per cent weaker than in 1990 and on a par with the level in 1994 - 95. so far this year, the volume of traditional merchandise exports have increased more than in the same period last year, but growth is levelling off. the exposure of norwegian exports in the ict sector, where the international downturn has been most severe, is limited. norway ’ s manufacturing output has declined somewhat this year, but less than in other countries. on the other hand, norwegian manufacturing industry did not experience the upswing in 1999 and 2000. the business sentiment indicator does not suggest a severe decline. the order situation is still satisfactory in many industries. this does not necessarily mean that the turnaround will not occur in norway as well. a sharp fall in share prices, tighter borrowing terms and an imbalance in international credit markets may quickly affect investment, prices, profitability and expectations. so far, however, it is difficult to draw any conclusions except that uncertainty has increased. the norwegian economy is operating at capacity limits and there are few if any available resources in the labour market. unemployment has declined throughout the country. unemployment in western norway, which increased marginally last year, has returned to its previous level