Dismay at China’s World Bank rigging scandal
Some investors and activists have expressed dismay at revelations that World Bank executives pressured staff to boost China’s score in an influential report that ranks countries based on how easy it is to make money there. business.
They also said that the World Bank’s subsequent discontinuation of the “Doing Business” series of annual reports may make it more difficult for investors to assess where to put their money.
“The more I think about it, the worse it looks,” said Tim Ash of BlueBay Asset Management, adding that reports released since 2003 have become important to banks and businesses around the world.
“Any quantitative country risk model has built this into the ratings. Money and investments are allocated on the back of this series.”
An investigation by law firm WilmerHale, at the request of the World Bank’s ethics committee, concluded that World Bank chiefs, including Kristalina Georgieva – now head of the International Monetary Fund – had exerted “undue pressure” to increase China’s scores in the “Doing Business 2018” report.
At the time, the US-based multilateral lender was seeking Chinese support for a major capital raise.
China is the third largest shareholder of the World Bank after the United States and Japan.
Georgieva said she disagreed “fundamentally with the findings and interpretations” of the report, which was released on Thursday, and briefed the IMF’s board.
The Tax Justice Network advocacy group hailed the ethics committee’s investigation.
“The bigger question is how, if it is even possible, the Bank can eliminate the institution’s apparent corruption,” UK-based group CEO Alex Cobham said on Twitter.
Economists said such reports – by the World Bank and others – were useful but had long been vulnerable to manipulation.
They said some governments, especially in emerging countries that want to show progress and attract investment, might become fixated on their stance on reports that assess everything from the ease of paying taxes to legal fees.
The United Arab Emirates, 16th in the latest 2020 report, aimed to top the rankings in 2021 while Russia climbed to 28th in 2020, from 120th in 2011.
President Vladimir Putin has challenged the country to enter the top 20 by the end of the last decade.
When asked to comment on the World Bank’s dropping of ratings, Kremlin spokesman Dmitry Peskov said on Friday: “The task of improving the business climate is unrelated to the existence of ratings. Ratings are only a criterion. “
Previous World Bank research, however, suggested that foreign direct investment flows were higher for economies that performed better in its reports.
But Charles Robertson, chief economist at Renaissance Capital, said the ease of doing business had been losing credibility for years.
Some countries employ investment firms, including his own, and even former government officials to advise them on how to improve their rankings.
“There were large discrepancies between the corruption rank (s) of some countries and the ease of doing business scores, implying that these were only nominal improvements rather than to reflect an underlying economic change, ”he said.
“As an economist, however, it would be a real shame if we lost access to the underlying data. It’s really interesting, for example, to know that it takes 900 hours for a company in Brazil to process the data. taxes, while for elsewhere it takes 900 hours just 70, “Robertson added.