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Analysis: World Bank and IMF threatened with long-term damage after data manipulation scandal

WASHINGTON, Oct. 4 (Reuters) – Whether IMF chief Kristalina Georgieva was responsible for the 2017 World Bank changes that benefited China, the scandal has the reputation of both institutions, former employees, government officials and outside experts , damaged .

The damage from the data manipulation scandal that forced the World Bank to shut down its “doing business” investment climate rankings is potentially difficult to repair and has raised the question of whether the institutions’s influential research is subject to shareholder influence.

Georgieva has strongly denied allegations in an external World Bank investigative report that it put “undue pressure” on employees to make changes that shift China’s business climate ranking from 85 to 78 in the 2018 Business Climate Ranking report Time raised when the bank went to Beijing to seek support for a larger capital increase.

A higher ranking in the influential World Bank publication can mean an increased inflow of foreign mutual funds and boost countries’ economies and financial markets as fund managers have incorporated the doing business rankings into their analytical models. Current and former bank officials say countries are always pushing for a higher ranking.

Georgieva has blamed the office of former World Bank President Jim Yong Kim for ordering changes that were outside the established methodology of the report. The changes, first identified in a December 2020 review, included the removal of metrics for the time it took to open a bank account and receive bills, thereby reducing the estimated time it would take to start a business in Beijing and Shanghai was shortened.

“Given the importance of these data … being considered incontestable, these allegations are deeply troubling,” wrote Senators Robert Menendez and James Risch in a letter to President Joe Biden asking for “full accountability” on the matter asked.

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

Prominent economists and female executives face themselves with published opinion articles and tweets on Georgieva’s defense, including former World Bank chief economist Joseph Stiglitz, who has described the allegations as an “attempted coup” at the IMF.

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

Georgieva and the outside law firm hired by the World Bank to carry out the report are due to be interviewed by the IMF’s executive board earlier this week as the investigation into the allegations intensifies, Reuters reported on Sunday. Continue reading

RESERVATION OF THE JUDGMENT

Treasury ministers of the major economies, including Treasury Secretary Janet Yellen, have not looked at the matter, and the issue was not raised at a G7 finance chiefs meeting last week.

A statement from the UK Treasury merely stressed the need for “good governance” at the World Bank.

“We support transparency and are considering the publication of the independent investigation results on irregularities in the data reporting for the Doing Business Report of the World Bank,” said a spokesman for the UK Treasury Department in an email to Reuters.

With an investigation by the WilmerHale law firm ongoing, the controversy could overshadow the IMF and World Bank annual meetings October 11-17.

The scandal has long fueled criticism of the inherently political nature of both Bretton Woods institutions, which were established in July 1944 to rebuild the war-torn world economy.

In the decades since then, the two have grown to roughly 190 countries, with more than $ 1 trillion in combined lending and research that guides government policy making and hundreds of billions of dollars in annual private sector investment flows, that exceed their annual lending.

Timothy Ash, senior sovereign strategist at Bluebay Asset Management, said the allegations suggest that some of these investment flows were based on “compromised, even corrupted” doing business rankings.

“The report is deeply troubling about what it said about the damage done to the credibility and ethical culture and reputation of the World Bank and the IMF,” Ash wrote in a letter to the Financial Times.

“STRUCTURAL” CRISIS

Previous leadership controversies in the institutions have often created inconvenience between individual executives. Continue reading

But the World Bank’s data manipulation crisis goes beyond the actions of a few individuals and creates “deeper structural problems” in the governance of both the bank and the fund, said Luiz Vieira, coordinator of the London-based Bretton Woods project. a nonprofit watchdog group.

“It shows how trustworthy the World Bank and the IMF can be when they provide advice based on solid research,” he said. “It raises questions about whose interests are being served, how robust is their analysis, and how exposed are they to geopolitical and shareholder pressures?”

Former bank officials say they are not surprised.

Harry Broadman, managing director of Berkeley Research Group, who worked at the World Bank from 1994 to 2008, said he warned of tampering risks when the bank drew up a predecessor to the Doing Business report in the 1990s. But he said these issues didn’t necessarily spill over to other banking research.

“It would be naive to think that big, big shareholders who sit on the board of directors, including the US, UK, Germans, etc., don’t have much influence,” Broadman said. “What’s more surprising is that the institution’s management would consider changing certain things based on someone speaking out against the way they came out.”

Reporting by Andrea Shalal and David Lawder; Editing by Heather Timmons, Dan Burns and Dan Grebler

Our Standards: The Thomson Reuters Trust Principles.

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