Sunday, October 24, 2021

Analysis: World Bank, IMF face long-term losses after data rigging scandal

WASHINGTON – Even though International Monetary Fund (IMF) chief Kristalina Georgieva was blamed for changes in World Bank figures in 2017 that benefited China, the scandal has hit both institutions, former employees, government officials and outsiders. The research reputation of experts has been tarnished.

The damage caused by the data-rigging scandal that forced the World Bank to shut down its “doing business” investment climate rankings may be difficult to repair and has raised questions about whether the institutions’ influential research is subject to shareholder influence. .

Georgieva has strongly denied allegations in the World Bank’s external investigation report that she applied “undue pressure” on employees, which lowered China’s business climate ranking from 85th to 78th in the 2018 Report on Business Climate Rankings. Extended time when the bank was seeking Beijing. Support for a major capital increase.

A high ranking in the influential World Bank publication could mean an increase in the flow of foreign investment funds, boosting countries’ economies and financial markets, as fund managers build Doing Business Rankings into their analytical models. Current and former bank officials say countries are always pushing their case for higher rankings.

Georgieva blamed the office of former World Bank President Jim Yong Kim for ordering changes that were outside the report’s established methodology. The changes, first identified in the December 2020 review, included the removal of metrics for bank account openings and time taken to receive invoices, reducing the estimated time to start a business in Beijing and Shanghai.

IMF Managing Director Kristalina Georgieva International Monetary Fund (IMF) Managing Director Kristalina Georgieva remarks during a concluding news conference for the International Monetary Finance Committee during the 2019 Annual Meeting of Finance Ministers and Bank Governors of the IMF and the World Bank on October 19, 2019 in Washington . (Mike Thiler/Reuters)

“Given how important this data is … viewed as imprecise, these allegations are very disturbing,” Cessense wrote. Robert Menendez (DN.J.) and James Risch (R-Idaho) called for “full accountability” in the matter in a letter to President Joe Biden.

“The impact these allegations may have on the strength and reputation of our international financial institutions and the Bretton Woods system is still unknown – but of course they will not be good.”

Prominent economists and women leaders are rallying in defense of Georgieva with published opinions and tweets, including Joseph Stiglitz, the former chief economist of the World Bank, who has dubbed the allegations an “attempted coup” at the IMF.

Shantha Devarajan, a former World Bank official in charge of the Doing Business report in 2017, says she was never pressured by Georgieva to change the report. He later told Reuters that the changes were made without his consultation, but he does not know by whom.

Lawyers for Georgieva and Wilmerhall, the law firm appointed by the executive board of the World Bank that prepared the investigation report, are to be interviewed by the IMF’s executive board earlier this week as the investigation intensifies, Reuters reported on Sunday. .

withholding judgment

Finance ministers of major economies, including US Treasury Secretary Janet Yellen, have so far avoided a public decision on the matter, and the topic did not come up during last week’s meeting of seven (G-7) finance leaders.

A statement from Britain’s finance ministry stressed the need for only “good governance” at the World Bank.

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A UK Finance Ministry spokesman said in an emailed statement to Reuters: “We support transparency and are considering the publication of independent investigative findings on irregularities in data reporting in relation to the World Bank’s Doing Business report.” Huh.”

A spokesman for the US Treasury said Wilmerhall “the findings are serious and require a full review of the managing director’s role in the Doing Business report by the IMF.”

With the law firm continuing to investigate, the controversy could loom large at the annual meetings of the IMF and World Bank on October 11-17.

The scandal has fueled long-standing criticisms about the inherently political nature of the Bretton Woods institutions, both established in July 1944 to rebuild the war-torn global economy.

In the decades since then, the two have covered nearly 190 countries, with more than $1 trillion in combined lending power and research that guides government policy choices and hundreds of billions of dollars in annual private sector investment flows. which is more than their annual loan.

Timothy Ashe, senior sovereign strategist at Bluebay Asset Management, said the allegations suggest some of these investment flows are based on “compromised, even corrupted” Doing Business rankings.

“The report is deeply disturbing in the context of what it suggests as damage to the credibility and ethical culture and reputation of the World Bank and the IMF,” Ashe said in a letter to the Financial Times.

‘Structural’ crisis

Disputes over past leadership in institutions often involve improprieties between individual leaders.

But the World Bank data-rigging crisis goes beyond the actions of a few individuals to “deep structural issues” in the governance of both the bank and the fund, said Luiz Vieira, coordinator of the London-based Bretton Woods Project, a non-profit watchdog group.

“It highlights the degree to which the World Bank and the IMF can be relied upon to provide advice based on really solid research,” he said. “This raises the question of whose interests are being served, how strong are their analysis, and how are they subject to geopolitical and shareholder pressure?”

Former bank officials say they are not surprised.

Harry Brodman, managing director of Berkeley Research Group, who worked at the World Bank from 1994-2008, said he had warned about the risks of manipulation when the bank established a predecessor to the Doing Business report in the 1990s. But he said those problems don’t necessarily spread to other bank research.

“It would be nave to think that the big, big shareholders who sit on the board, including the US, UK, German and others, don’t have much influence,” Brodman said. “The surprising thing is that the management of the institute would consider changing some things, based on raising one’s voice as opposed to coming forward.”

By Andrea Schallal and David Lauder

Reuters

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This News Originally From – The Epoch Times

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