Bad for business: World Bank China rigging scandal rattles investors

They said the World Bank's discontinuation of the "Doing Business" reports could make it harder for investors to assess where to put their money

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.

They said the World Bank's discontinuation of the "Doing Business" reports, which rate countries according to how easy it is to do business in them, could make it harder for investors to assess where to put their money.

"The more I think about this, the worse it looks," Tim Ash at BlueBay Asset Management said in emailed comments.

"Any quantitative model of country risk has built this into ratings. Money and investments are allocated on the back of this series."

An investigation by law firm WilmerHale https://www.reuters.com/business/sustainable-business/world-bank-kills-business-climate-report-after-ethics-probe-cites-undue-pressure-2021-09-16 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.

At the time, the Washington-based multilateral lender was seeking China's support for a big capital increase.

Georgieva said she disagreed "fundamentally with the findings and interpretations" of the report, which was released on Thursday, and had briefed the IMF's executive board.

Economists said such reports - by the World Bank and others - were useful but had long been vulnerable to manipulation.

They said some governments, especially in poorer emerging market countries who want to demonstrate progress to voters, could become obsessed with their position in the reports, which assess everything from ease of paying taxes to legal rights.

Charles Robertson, chief economist at Renaissance Capital, said ease of doing business scores had been losing credibility for years. Some countries employ investment firms, including his own, and even former government leaders to advise them on how to improve their rankings.

"There have been wide divergences between some countries corruption ranking(s) and the ease of doing business scores, which implies that these were only face-value improvements rather than reflecting underlying economic change," he said.

"As an economist, though, it would a real shame if we lose access to the underlying data. It is really interesting, for example, to know that it takes a company in Brazil 900 hours to process taxes, whereas for somewhere else it take only 70," Robertson added.

The "Doing Business" reports have been published annually since 2003 and BlueBay's Ash said they had become important for banks and businesses in terms of assessing country risk around the world.

The findings of the investigation raise questions about the fairness of the reports and the impartiality of those putting them together.

"The bigger question is how, if it is even possible, the Bank can eliminate the apparent corruption of the institution that the review documents," Alex Cobham, chief executive of advocacy group Tax Justice Network, said on Twitter.

 

(Editing by Catherine Evans)