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World Bank scandal over China ratings manipulation worries economists

World Bank scandal over China ratings manipulation worries economists

Economists and investment funds are concerned about revelations that the leadership of the World Bank has put “disproportionate pressure” on staff to improve China’s rating in the bank’s influential 2018 Doing Business report and its subsequent withdrawal. Reuters said that removing a report that ranked countries on ease of doing business could make it difficult for investors to assess where to put their money.

“The more I think about it, the worse it looks,” said Tim Ash, asset management strategist at BlueBay. He pointed out that any quantitative model of state risk has been included in it, and on the basis of these reports decisions are made regarding the employment of funds and investments.

At the request of the SB Ethics Committee, an investigation by law firm WilmerHale found that SB chiefs, including Kristalina Georgieva, who is now the head of the International Monetary Fund (IMF), were pushing for improved Chinese ratings. At that time, the bank was trying to get China’s support for a significant capital increase.

Georgiev said she “strongly disagrees with the findings and interpretations” of the report, which was published on Thursday, and told the Executive Board of the International Monetary Fund.

Economists say similar reports, SB and other institutions, are helpful. However, they have been subject to manipulation for a long time. According to them, some governments, especially in poor developing countries, that want to show progress to voters may be nearly the last to be included in reports that assess everything from how easy it is to pay taxes in the country to the law.

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The ease of doing business has been losing credibility for years, said Renaissance Capital chief economist Charles Robertson. Some countries employ investment firms, including his own, and even former government officials to advise them on how to improve ratings.

“There are significant differences in the assessment of corruption and the ease of doing business in some countries, indicating that this was an improvement in face value rather than a reflection of fundamental economic changes,” he said. “But as an economist, I would say it would be a shame if we lost access to the underlying data. It’s really exciting to know, for example, that it takes 900 hours for a company to process taxes in Brazil, while in other places it’s only 70 hours,” Robertson added. .

Doing Business has been published annually since 2003 and, according to Ash, has become important for banks and companies in assessing the risks of individual countries around the world.

However, the findings of the investigation raise concerns about the veracity of these reports and the impartiality of those who collect them.

“The bigger question is how – if at all possible – the subsidiary body can eliminate the clear corruption of the institution documented through inspection,” Alex Cobham, president of the Tax Justice Network, said on Twitter.