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World Bank China rigging scandal rattles investors By Reuters


© Reuters. FILE PHOTO A participant poses near the logo of World Bank during the International Monetary Fund-World Bank Annual Meeting 2018, in Nusa Dua (Bali, Indonesia), October 12, 2018. REUTERS/Johannes P. Christo/File Photo

By Tom Arnold and Marc Jones

LONDON (Reuters) – Economists at investment funds expressed dismay on Friday at revelations that World Bank leaders put “undue pressure” on staff to boost China’s ranking in its influential “Doing Business 2018” report, and the series’ subsequent cancellation.

According to them, investors may find it difficult to choose where to invest due to the World Bank discontinuing the “Doing Business” report, which ranks countries based on the ease of doing business there.

BlueBay Asset Management’s Tim Ash stated in an emailed comment that “The more this is thought about, the worse it appears.”

This is what any quantitative country risk model has used to create ratings. These series are used as the basis for allocations of money and investments.

An investigation by law firm WilmerHale at the request of the World Bank’s ethics committee found World Bank chiefs including Kristalina Georgieva, now head of the International Monetary Fund, had applied pressure to boost China’s scores.

The Washington-based multilateral lender wanted China to support a large capital rise at the time.

Georgieva stated that she was not satisfied “fundamentally” with the conclusions and interpretations of the IMF report. She had also briefed IMF’s executive boards.

According to economists, such reports by the World Bank or others were valuable but could be manipulated for years.

The report’s assessment of everything from tax compliance to legal rights could lead to governments becoming obsessed, even in developing markets.

Charles Robertson of Renaissance Capital is chief economist. His investment firm, as well as former officials, are used by some countries to assist them in improving their rankings.

He stated that there were wide differences between the corruption rankings of some countries and ease-of-doing business scores. This suggests that they are only face value improvements, rather than reflecting economic changes.

It would be a shame for economists to lose the ability to access these data. Robertson said that it is interesting to see how long it takes for a Brazilian company to file taxes. It only takes 70 hours for a tax processing business to do the same thing in another country.

BlueBay’s Ash stated that the “Doing Business”, reports are published every year since 2003. They have become an important tool for businesses and banks to assess country risk in different parts of the globe.

Questions arise about both the integrity of the reports as well as the impartiality and fairness of their compilations, according to the findings.

Alex Cobham (chief executive, advocacy group Tax Justice Network), stated that it was difficult for the Bank to eliminate apparent corruption in the institution reviewed.