Economic Perspectives

Allegations of manipulation in the World Bank’s annual Doing Business ranking suggest institutional problems

Print edition : November 05, 2021

Kristalina Georgieva, at the IMF Annual Meetings in Washington, D.C., on October 11, 2017, when she was still the CEO of the World Bank. Photo: Andrew CABALLERO-REYNOLDS/AFP

The difference in the responses to the allegations against Chile and China regarding manipulation of the World Bank’s Doing Business rankings in 2018 suggests that the institution itself is prone to such violations, not any one individual.

A CHARADE played out in the weeks preceding the fall meetings of the International Monetary Fund (IMF) and the World Bank has subsequently occupied time that should have been devoted to more crucial issues such as a looming debt crisis, inequalities in vaccine distribution and finance for mitigating and adapting to climate change. The G7 governments and IMF directors have been preoccupied with the question as to whether Kristalina Georgieva manipulated the results of the World Bank’s annual (ease of) Doing Business report (DBR) in 2018 when she served as the chief executive of that institution and whether she should for that reason step down from her current position as Chair and Managing Director of the IMF. The allegation of manipulation led to the mid-September decision to discontinue the DBR. But as of now Kristalina Georgieva has won the battle to stay in her position.

The charge against her is that under her watch she prevented a downward revision of China’s 2017 position from 78 to 85 in the Doing Business ranking, keeping it at 78 in 2018 as well. She did this, it is suggested, under pressure from China while the World Bank was negotiating a multibillion-dollar capital increase with its members. Since that brings her integrity under a cloud, she does not deserve to remain the head of an ostensibly “independent” and honourable institution like the IMF the argument went. The allegation—prompted by internal reports of “data irregularities” in the 2018 and 2020 editions of the DBR involving ethical violations by bank staff—was converted into a conspiracy theory by a commissioned report from the law firm WilmerHale, which the Nobel laureate Joseph Stiglitz dismissed as a “hatchet job”.
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However, the argument that whatever Kristalina Georgieva did in 2018—together with the then World Bank President, Jim Yong Kim, and Simeon Djankov, the designer of the Doing Business metric—was an aberration and that maintenance of methodological and data integrity was the norm at the bank is nothing but hogwash. There is a view that at least some of the World Bank’s portfolio of indices are aimed at skewing policies in developing countries in directions its dominant shareholders desire. And many of them are not robust. Not only are indices such as the Doing Business ranks routinely interfered with but even the gross domestic product growth projections for individual countries that the IMF puts out regularly are likely determined not by robust models but by assessments of whether a country’s policies are “right”. Not only are such projections regularly revised, but they tend to diverge from actuals, often by a large margin. Against that background, the question whether keeping China at rank 78 for two years running was reflective of malfeasance is easily resolved. In the two years following 2018, that is, in 2019 and 2020, under a different chief executive, China’s rank improved to 31 and 25. If this had occurred after a fall in ranking in 2018, the conclusion must necessarily have been that either the 2018 ranking process was rigged against China or that the index was not robust, leading to wide fluctuations.

Ranking discontinued

The latter view is something that the World Bank itself, after years of procrastination, has now implicitly admitted, when it discontinued the Doing Business ranking system. What needs noting, however, is that there have been other accusations that changes in the methodology used to compute Doing Business ranks had conveniently helped the World Bank pursue its neoliberal ideology. In early 2018, Paul Romer, the then Chief Economist of the bank, alleged that Chile, a country that had been a long-term, neoliberal favourite of the Bretton Woods institutions, was subjected to a deliberate downgrade once it came under the rule of a socialist government led by President Michelle Bachelet. Chile’s rank improved when Michelle Bachelet’s government was replaced with a more conservative one under Sebastian Pinera.

In an interview he gave to The Wall Street Journal in January 2018, Romer apologised to Chile for changes to the report’s methodology that “conveyed the wrong impression” about the business environment in that country under Michelle Bachelet. He went further to suggest that the political motivations of the bank’s staff may have driven the changes in methodology. The allegation that the China ranking was manipulated also relates to 2018, when Kristalina Georgieva was heading the bank and reportedly working closely with fellow Bulgarian Simeon Djankov, who designed the DBR and is identified by some to have overseen the changes in method. But Romer’s speculations on the Chilean rank changes were papered over. An inquiry report by Randall Morck and James Chenxing Shou of the University of Alberta in Canada concluded: “Concerns that World Bank staff implement methodology changes to manipulate the Ease of Doing Business indicators of specific economies or to sway domestic politics in affected economies are entirely without evidence.” The fall guy was Romer, who resigned after having reported what he thought was an ideologically motivated manipulation of the index and was allowed to go. Romer recently said that in her previous role at the World Bank Kristalina Georgieva “engineered a cover-up, a whitewash” when he raised questions about the changes in methodology that affected Chile’s rankings.

In sum, the allegations about manipulation of the DBR rankings in the case of Chile and China have generated very different responses. In the case involving Chile, where the adverse reputational effect of a ranking downgrade, if any, impacted a socialist government that refused to accept the World Bank’s policy recommendations, the insider who discovered the manipulation became the victim targeted by the powers that control the institution. When the allegation of manipulation involved China, this time in the form of dropping a ranking downgrade that it is assumed helped the country and was engineered by pressure from its representatives, insider allegations of manipulation were followed by an inquiry that not merely indicted Kristalina Georgieva and the others involved but led to calls for her resignation from the IMF.

The difference between the responses generated in the two instances suggests it is not just one individual (Kristalina Georgieva) who should be implicated in the manipulation but the institution itself that is prone to such violations. It also suggests that intervention in favour of China, if it occurred at all, was not an exceptional breach of integrity. The allegations of manipulation of the Chilean ranking were deflected because that adjustment suited the United States and its allies that dominate World Bank shareholding. The allegations about China’s pressure having prevented a downgrade of its rank blew up because it comes in a context where the U.S. has made that country its (and the “free world’s”) principal enemy, with China being accused of using technology theft, debt diplomacy and territorial aggression in its search for political and economic dominance.
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But in this instance Kristalina Georgieva is being made the fall-person because of a more immediate reason. The shareholding structure of the World Bank and the IMF still reflect the balance of economic strength immediately after the Second World War. Much has changed since then, and the spectacular rise of China since the 1980s makes it a contender for a much larger vote share than it currently holds. China has made clear its ambitions to play a more important and vocal role in international institutions and has made some progress, especially during the Donald Trump era when the U.S. chose to withdraw in various ways from multilateral organisations. China has also sought to create new multilateral institutions of its own, among which is the Asian Infrastructure Investment Bank. The U.S. is, therefore, desperate to keep China at bay in the two Bretton Woods institutions by protecting its disproportionate vote share and those of its allies, though that does not make geopolitical sense. To that end, it serves to send out a message that China’s intentions are suspect when it demands a bigger role. It also helps to signal that functionaries seen as submitting to Chinese influence do not have a place in these institutions. Kristalina Georgieva seems to be taking a hit in that proxy battle.

However, the power-sharing framework created through the post-war global economic architecture is proving a hindrance. Despite the dominance of the U.S., Europe was granted the “right” to choose the chief of the IMF from among its member states. Bulgaria became a member of the European Union (E.U.) in 2007. And when Christine Lagarde left as IMF chief to helm the European Central Bank in 2019, Kristalina Georgieva was well placed to take on the mantle since she had useful experience at the World Bank, was a citizen of an E.U. member country, and to top it all was from a less developed “emerging market” within that union. The only factor that seemed to have stood in her way was her age since she was just about a year older than the 65-year ceiling that the IMF was adopting for applicants for the job. But France persuaded the IMF to relax that age limit, and Kristalina Georgieva won herself a five-year term. Having fought to put her there, and fearful of losing their privilege of choosing the IMF head, France, Germany, the United Kingdom and Italy decided to give her their backing in the current controversy.