Washingtion: Under fire for allegations that it bowed to pressure from China and other governments, the World Bank has dropped a popular report that ranked countries by how welcoming they are to businesses.
The report is important to many companies and investors around the world: They use the World Bank’s ``Doing Business’’ report to help decide where to invest money, open manufacturing plants or sell products.
Eager to attract investment, countries around the world, especially developing economies, have sought to improve their rankings in the World Bank’s report.
Sometimes, nations would pursue substantive policy changes _ by, for example, making it easier for businesses to pay taxes, obtain loans or enforce contracts. Sometimes, they would take a more aggressive tack: Like pushy high schoolers cajoling a teacher for a higher grade, they would lobby the World Bank to provide a higher score on the ``Doing Business’’ report
Countries that have scored a high ranking have often touted their success.
But the World Bank has long been accused of using sloppy methodology and of succumbing to political pressure in producing the rankings. This week, the bank dropped the report after investigators had reviewed internal complaints about ``data irregularities’’ in the 2018 and 2020 editions of ``Doing Business’’ and possible ``ethical matters” involving World Bank staff members.
In an investigation conducted for the bank, the law firm WilmerHale concluded that staff members fudged the data to make China look better under pressure from Kristalina Georgieva, then the CEO of the World Bank and now head of the International Monetary Fund, and the office of Jim Yong Kim, then the World Bank’s president.
IMF Managing Director Kristalina Georgieva said she asked staff to double-check or triple-check data, but never change its ultimate message, according to two attendees, who asked not to be named speaking about a closed-door session. The IMF's press office declined to comment on Georgieva's remarks, which were reported earlier by the New York Times.
Read more: IMF Chief Risks Weakened Authority After China-Linked Probe
Georgieva added that she cares strongly about data integrity and the ability of accurate data to bring about the best outcomes for IMF members and their citizens, the attendees said. She reiterated an initial statement from Thursday where she said that she disagrees "fundamentally" with the findings and interpretations of the investigation of data irregularities from her time as chief executive officer of the World Bank.
Georgieva in her previous job pressured staff to "make specific changes to China's data points in an effort to increase its ranking at precisely the same time the country was expected to play a key role in the bank's capital-increase campaign," according to a report commissioned by the World Bank board that was released Thursday.
China's position in the 2018 report, released in October 2017, should have been seven places lower - at No. 85 rather than remaining at 78 - the World Bank said in a review released in December.
The institution announced Thursday that it would abandon the periodic report, which ranked economies based on the ease and efficiency of conducting business operations and was often touted by governments when their country's position moved up the list.
Here is a closer look at the controversy:
What is the World Bank?
Founded in 1944, the 189-country World Bank makes grants and loans, often to finance big public works projects, and offers economic advice, mostly to developing nations. The bank, based in Washington, has also pledged to reduce poverty around the world.
What is the Doing Business Report?
In 2002, the bank introduced the report, whose annual rankings highlight which countries have adopted policies favorable to businesses and which haven’t _ and how much they’re improving or regressing. The bank, which collects information from tens of thousands of accountants, lawyers and other professionals in 190 countries, assesses how easy it is to do such things as start a business, obtain a construction permit or connect to the electrical grid. Last year, New Zealand ranked No. 1 and Somalia No. 190. The United States was No. 6.
Why was the report important?
Though meant to measure how governments treat domestic businesses, the rankings have often been interpreted by the media and by investors as a proxy for how much countries welcome foreign investment.
``Any quantitative model of country risk has built this into ratings,’’ says Timothy Ash, an emerging market strategist at the fixed income manager BlueBay Asset Management. ``Money and investments are allocated on the back of this series.’’
Why the World Bank dropped the report?
Questions surrounding the report date back to at least 2018, when Paul Romer, then the chief economist of the World Bank, who would go on to win a Nobel Prize in economics for his earlier work, resigned after complaining about how ``Doing Business” treated Chile.
As a result of methodological tinkering, the South American country had plunged in the rankings while socialist Michelle Bachelet occupied the presidency, rebounded under conservative Sebastian Pinera, then slumped again when Bachelet returned to power. The ups and downs occurred despite little actual change in policy, according to a summary of events by the Center for Global Development think tank, which called then for the bank to ``ditch’’ the report.
Justin Sandefur, a senior fellow at the center, contends that the rankings have always reflected a bias against government intervention in the economy. He said, for example, that the rankings have failed to properly assess any benefits from state spending or worker and consumer protections.
``It came from a very strong anti-regulatory anti-tax, get-the-state-out-of-the-way-so-the-private-sector-can-thrive approach,’’ Sandefur said. ``That was the original sin. It is deep in the DNA’’ of the report.
WilmerHale delivered another blow to the World Bank and the ``Doing Business’’ rankings. World Bank staffers who were compiling the 2018 report were preparing to knock China down to No. 85 in the rankings from No. 78 the year before. The downgrade would have come at a time when the World Bank was trying to raise capital _ an effort in which Beijing, the bank’s No. 3 shareholder, was expected to play a ``key role,’’ according to the law firm’s report.
The investigation found that Georgieva ``became directly involved in efforts to improve China’s ranking.”
According to the investigation, she also lambasted the bank’s China director for ``mismanaging’’ the bank’s relations with Beijing and for failing to appreciate how important the ``Doing Business’’ rankings were to the Chinese leadership. Under pressure from the top, the investigators found, the bank staff decided to give China more credit for a new law involving so-called secured transactions _ typically, loans that involve collateral.
WilmerHale concluded that bank staffers knew that the changes to the report were ``inappropriate’’ but feared retaliation _ including dismissal _ if they expressed concern. The law firm referred to a ``toxic culture’’ at the bank.
In a statement, Georgieva rejected the report: ``I disagree fundamentally with the findings and interpretations of the Investigation of Data Irregularities as it relates to my role in the World Bank’s Doing Business report of 2018.”
Eswar Prasad, a professor of trade policy at Cornell University, said the ``Doing Business’’ report was already losing favor: ``In recent years, the increasing politicization of the report’s presentation and analysis of data had already undercut its credibility and diminished its value to international investors.’’
After data irregularities on Doing Business 2018 and 2020 were reported internally in June 2020, World Bank management paused the next Doing Business report and initiated a series of reviews and audits of the report and its methodology. In addition, because the internal reports raised ethical matters, including the conduct of former Board officials as well as current and/or former Bank staff, management reported the allegations to the Bank’s appropriate internal accountability mechanisms.
After reviewing all the information available to date on Doing Business, including the findings of past reviews, audits, and the report the Bank released today on behalf of the Board of Executive Directors, World Bank Group management has taken the decision to discontinue the Doing Business report. The World Bank Group remains firmly committed to advancing the role of the private sector in development and providing support to governments to design the regulatory environment that supports this. Going forward, we will be working on a new approach to assessing the business and investment climate. We are deeply grateful to the efforts of the many staff members who have worked diligently to advance the business climate agenda, and we look forward to harnessing their energies and abilities in new ways.”