World Bank rigging scandal in China shakes investors

A participant stands near a World Bank logo during the 2018 annual meeting of the International Monetary Fund and the World Bank in Nusa Dua, Bali, Indonesia. Reuters / file

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A participant stands near a World Bank logo during the 2018 annual meeting of the International Monetary Fund and the World Bank in Nusa Dua, Bali, Indonesia. Reuters / file

Some investors and activists expressed dismay on Friday 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 do it. 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, found 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. Read more

At the time, the Washington-based multilateral lender was seeking Chinese support for a major capital raise.

Georgieva said she disagreed “fundamentally with the findings and interpretations” of the report, which was released 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 – from 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, which 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 issued the challenge to the United Arab Emirates. country to break into the top 20 at 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 the best performing economies 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 they were only nominal improvements rather than to reflect an underlying economic change, ”he said.

“As an economist, however, it would be a real shame to lose 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 taxes. , while for elsewhere it only takes 70, “added Robertson.

Emerging markets-focused investment manager Ashmore Group hired a third-party data provider who used Doing Business findings as one of their sources, but ultimately relied on their own research for the decisions. investment, said Gustavo Medeiros, Ashmore’s deputy director of investment research. solidify.

“When companies are looking to make foreign direct investments, the report is a useful roadmap to understand where the potential problems may be and then they can do their due diligence,” he added.


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