WASHINGTON, Oct.4 (Reuters) – Whether or not IMF chief Kristalina Georgieva is to blame for changes to World Bank data in 2017 that benefited China, the scandal has tarnished the research reputation of two institutions, according to former staff, government officials and outside experts. .

The damage caused by the data-rigging scandal that forced the World Bank to halt its’ Doing Business’ investment climate ranking may be difficult to repair and have raised questions about whether influential institutions’ research is being submitted. influence of shareholders.

Georgieva strongly denied accusations in an external World Bank investigative report that she put “undue pressure” on staff for changes that raised China’s business climate ranking to 78th, against 85th in the 2018 business climate ranking report at a time when the bank was seeking Beijing’s ranking. support for a major capital increase.

A higher ranking in the influential World Bank publication may mean an increase in inflows of foreign investment funds, boosting the economies and financial markets of countries, as fund managers have incorporated the Doing Business ranking into their analytical models. . Current and former bank officials say countries are still pushing for higher rankings.

Georgieva criticized 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 a December 2020 review, included the removal of metrics for the time it took to open a bank account and get invoices, which reduced the estimated time to start a business at Beijing and Shanghai.

“Given how critical it is that this data be … considered flawless, these allegations are deeply troubling,” wrote Senators Robert Menendez and James Risch in a letter to President Joe Biden calling for “full accountability” in the matter. .

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

Eminent economists and women leaders mobilize in defense of Georgieva with published opinion pieces and tweets, including former World Bank chief economist Joseph Stiglitz, who called the allegations an “attempted coup” at the IMF.

Shanta Devarajan, former head of the World Bank in charge of the Doing Business report in 2017 says he’s never been pressured by Georgieva to modify the report. He then told Reuters that changes were made without his consultation, but he is not sure by whom.

Georgieva and lawyers at WilmerHale, the World Bank-hired law firm that produced the investigation report, are due to be questioned earlier this week by the IMF board as the investigation into the allegations s ‘is stepping up, Reuters reported on Sunday. Read more

HOLD THE JUDGMENT

Finance ministers from major economies, including U.S. Treasury Secretary Janet Yellen, have so far refrained from making a public judgment on the matter, and the topic has not been raised at a meeting of leaders. G7 fundraisers last week.

A statement from the UK Department of Finance stressed only the need for “good governance” at the World Bank.

“We support transparency and are considering the publication of the findings of the independent investigation into irregularities in the reporting of data regarding the World Bank’s Doing Business report,” a spokesperson for the UK Ministry of Finance said in a statement sent. by email to Reuters.

A spokeswoman for the US Treasury said that “WilmerHale’s conclusions are serious and have warranted a full review by the IMF of the role of the managing director in the Doing Business report.”

As the WilmerHale law firm investigation continues, the controversy could eclipse the annual IMF and World Bank meetings October 11-17.

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

In the decades that followed, the two countries grew to encompass around 190 countries, with a combined lending power of more than $ 1 trillion and research that informs government policy choices and hundreds of billions of dollars. dollars in annual private sector investment flows that exceed their annual loans.

Timothy Ash, senior sovereign strategist at Bluebay Asset Management, said the accusations suggest some of these investment flows were based on “compromised, even corrupt” Doing Business rankings.

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

“STRUCTURAL” CRISIS

Past controversies over leadership in institutions have often involved irregularities among individual leaders. Read more

But the World Bank’s data-rigging crisis goes beyond the actions of a few individuals for “deeper structural issues” in the governance of the Bank and the Fund, said Luiz Vieira, coordinator of the Bretton Woods Project, an organization London-based nonprofit supervisor. group.

“It shows how much the World Bank and the IMF can be truly trusted to provide advice based on solid research,” he said. “Does this raise questions about which interests are served, the robustness of their analysis, and the extent to which they are subject to geopolitical and shareholder pressure?”

Former bank officials say they are not surprised.

Harry Broadman, managing director of the Berkeley Research Group, who worked at the World Bank from 1994 to 2008, said he warned of the risks of manipulation when the bank implemented a predecessor of the Doing Business report in the 1990s. But he said these problems did not necessarily spill over into other banking research.

“It would be naive to think that the big shareholders who sit on the board, including the US, UK, Germans, etc., don’t have a lot of influence,” Broadman said. “What is more surprising is that the leadership of the institution is considering changing some things, based on someone opposing the way they came out.”

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

Our Standards: Thomson Reuters Trust Principles.



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