Andrea Shalal and David Lawder

WASHINGTON, (Reuters) – Regardless of the fact that Kristalina Georgieva, IMF chief, was responsible for the 2017 changes in World Bank data which benefited China’s, this scandal has damaged the reputations of the institutions as well as former staff and experts.

The damage from the data-rigging scandal that forced the World Bank to discontinue https://www.reuters.com/business/sustainable-business/world-bank-kills-business-climate-report-after-ethics-probe-cites-undue-pressure-2021-09-16 its “Doing Business” investment climate rankings may be difficult to repair and has raised questions over whether the institutions’ influential research is subject to shareholder influence.

Georgieva has strongly denied https://www.reuters.com/business/imfs-georgieva-accuses-former-world-bank-president-kims-office-manipulation-2021-09-24 accusations in a World Bank external investigation report https://thedocs.worldbank.org/en/doc/84a922cc9273b7b120d49ad3b9e9d3f9-0090012021/original/DB-Investigation-Findings-and-Report-to-the-Board-of-Executive-Directors-September-15-2021.pdf that she applied “undue pressure” on staff for changes that boosted China’s business climate ranking to 78th from 85th in the 2018 report on business climate rankings at a time when the bank was seeking Beijing’s support for a major capital increase.

A higher ranking in the influential World Bank publication can mean increased inflows of foreign investment funds, boosting countries’ economies and financial markets, as fund managers have built the Doing Business rankings https://www.reuters.com/business/finance/bad-business-world-bank-china-rigging-scandal-rattles-investors-2021-09-17 into their analytical models. Former bank officers and current officials claim that countries always push for higher rankings.

Georgieva has blamed the office https://www.reuters.com/business/imfs-georgieva-accuses-former-world-bank-president-kims-office-manipulation-2021-09-24 of former World Bank President Jim Yong Kim for ordering changes that were outside of the report’s established methodology. The changes, first identified in a December 2020 review https://thedocs.worldbank.org/en/doc/791761608145561083-0050022020/original/DBDataIrregularitiesReviewDec2020.pdf, included removal of metrics for the amount of time it took to open a bank account and obtain invoices, which reduced the amount of time estimated to start a business in Beijing and Shanghai.

“Given how critical it is that this data be… seen as unimpeachable, these allegations are deeply disturbing,” wrote Senators Robert Menendez and James Risch in a letter https://www.foreign.senate.gov/imo/media/doc/09-22-21%20Menendez%20Risch%20letter%20to%20POTUS%20re%20Georgieva%20World%20Bank%20investigation.pdf to President Joe Biden asking 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 are still unknown — but surely they will not be good.”

Prominent economists and women leaders are rallying to Georgieva’s defense https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2021/09/Lord_Stern_to_Aleksei_Mozhin_26Sept2021.pdf with published opinion pieces and tweets https://twitter.com/G_stordalen/status/1441371371192209415, including former World Bank chief economist Joseph Stiglitz, who has labeled the allegations a “coup attempt” at the IMF https://www.project-syndicate.org/commentary/coup-attempt-against-imf-managing-director-georgieva-by-joseph-e-stiglitz-2021-09.

Shanta Devarajan, the former World Bank official in charge of the Doing Business report in 2017 says he was never pressured https://twitter.com/Shanta_WB/status/1441093124638449675 by Georgieva to alter the report. Later, he told Reuters that he was not consulted and that modifications were made. However, Reuters does not yet know who.

As the investigation into allegations continues, Georgieva along with the law firm hired outside by the World Bank to prepare the report will be interviewed by IMF executive board members early next week.

JUDGMENT WITHHOLDING

Major economies’ finance ministers, including Janet Yellen from the U.S. Treasury, have so far resisted any attempts to comment on the subject. The topic also was not raised at the G7 meeting of financial leaders.

An official statement by Britain’s Finance Ministry stressed the necessity of good governance at the World Bank.

In an email statement sent to Reuters, a spokesperson from the UK Finance Ministry stated that “We support transparency” and would consider publishing independent investigative findings regarding irregularities in data reporting relating to the World Bank Doing Business Report.

The ongoing investigation of WilmerHale by the law firm could make the IMF or World Bank Annual Meetings Oct 11-17 more difficult.

Long-standing critics have been raising concerns about the political nature of Bretton Woods institutions. These were set up in July 1944 as a way to rebuild the devastated global economy.

Over the past decades, they have expanded to cover around 190 nations, with combined lending powers of over $1 trillion. Research that informs government policy decisions and private sector investments of hundreds of billions more than their annual lending has led them to expand.

Timothy Ash, senior sovereign strategist at Bluebay Asset Management, said the accusations suggest https://www.ft.com/content/0b01fd3b-7c31-4630-8463-e644b8de9a52 that some of these investment flows have been based on “compromised, even corrupted” Doing Business rankings.

Ash sent a letter to Financial Times stating that “the report is deeply troubling” and warned of potential damage to credibility, ethics culture, and standing of IMF and World Bank.

CRISIS – STRUCTURAL

In the past, there have been controversies over leadership at institutions that involved improper behavior among individuals.

Luiz Vieira (coordinator of the non-profit watchdog, Bretton Woods Project) said that the World Bank data-rigging scandal goes far beyond actions by a handful of individuals.

He said that the report “shows how much the World Bank (and the IMF) can be trusted to give sound advice, based upon solid research.” “It raises concerns about who’s being served, what robustness is their analysis and how susceptible they are to shareholder pressure and geopolitical interference.”

Ex-bank officials claim they were not shocked.

Harry Broadman was the managing director of Berkeley Research Group. He worked for the World Bank between 1994 and 2008. However, he stated that those issues did not always spill over into other areas of bank research.

Broadman explained that “It would not be naive for me to believe that the large and powerful shareholders on the board (including the U.S., UK, Germany, etc.) don’t have a lot influence.” It is surprising that the management would change certain aspects if someone opposed the current way things are being done.