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The Financial Express

'Doing business index' reporting questioned


Kristalina Georgieva Kristalina Georgieva

The head of the International Monetary Fund (IMF) is now under fire for her alleged role in manipulating some data during her tenure in the World Bank as chief executive officer. She has been criticised for putting pressure on the internal team of the bank to artificially boost China's rank in the flagship Doing Business report in 2018. An independent investigation was conducted by the US-based law firm WilmerHale. It identified that Kristalina Georgieva, now IMF managing director, intervened in the rankings process when it appeared that China would fall several notches in the global index.

In 2014, China ranked 96th in the index which improved to 90th in 2015 and 84th in 2016. In 2017 and 2018, the ranking remained unchanged in the 78th position.  In 2019, it improved significantly as China ranked 46th and in 2020 it stood at 31st. In the unpublished index for 2021, China ranked 25th. Economies are ranked on their ease of doing business, from 1-190, in the index. A high ease of doing business ranking means the regulatory environment is more conducive to start and operate a local firm. The World Bank has been publishing the index annually since 2003. In the last 18 years, the bank has revised and corrected the methodology of ranking from time to time to make the index and relevant reports more acceptable. Nevertheless, several flaws in the index had been identified by many experts.

Now the data tampering allegation has raised a question on whether China used its money power to influence the Ease of Doing Business survey. The allegation against Georgieva also mentioned that she put pressure on the team to improve China's position 'when the World Bank was seeking more money from the country.' China is the third-largest shareholder of international financial institutions.

Georgieva, a Bulgarian citizen and a  political economist, was the chief executive of the World Bank Group from 2017 to 2019. Later she became the managing director of IMF. She, however, rejected the allegation briefly saying that she 'did not pressure anyone to alter any reports.'

The WilmerHale report also mentioned that there were pressures related to determining rankings for Saudi Arabia, the United Arab Emirates and Azerbaijan in the "Doing Business 2020" report published in 2019.  The report, however, did not fund any evidence that any members of the World Bank's Office of the President or executive board were involved in these changes.

Nevertheless, the allegation has sparked debate and outrage among the leading economists, policymakers and the media. At least two former chief economists of the World Bank, directly and indirectly, backed Georgieva saying that the allegation is questionable and the investigation is flawed. Joseph Stiglitz, also a winner of the Noble Prize in economics, argued: "The efforts now underway to remove Georgieva are not only unjust but could hamstring the Fund's management for years to come."

Referring to the flaws of the WilmerHale report, he said that the report indicated a possible 'quid pro quo' which means the bank may attempt to raise capital and offered improved rankings to help get it. Stiglitz argued that China always supported the capital increase while the United States (US) under President Donald Trump dragged its feet. Thus, he added in his piece published in Project Syndicate that if the intent had been to ensure the capital rise, 'the best way of doing so would have been to lower China's ranking.'

In a moderate piece, also published in Project Syndicate, Kaushik Basu, another former chief economist of the World Bank, said: "Yes, countries have always lobbied and jostled to improve their rankings. But I never gave in to any of that pressure. Nor, to the best of my knowledge, did any of my predecessors." He also said: "Some senior officials will no doubt be shown the door. But this is also the time to take stock of the entire business of Doing Business."

Basu also argued that though the World Bank's decision to stop publishing Doing Business is 'an understandable initial reaction', the interruption should be utilised to 'develop a better report, instead of ending it for good.' On September 16, the World Bank Group scrapped its flagship publication, the 'Doing Business' report following the allegation of data tampering.

 Jeffery Sachs, the director of the Center for Sustainable Development at Columbia University, is blunt in his argument. In a strong piece published in Financial Times, he termed the whole thing as an 'anti-China hysteria' that 'lies at heart of action against IMF's Georgieva.' Sachs argued that the attack against Georgieva is not actually 'about the alleged sanctity of World Bank data or about the quality of her management. It is about the role of China in a Washington-based multilateral institution. Many in the US Congress want Georgieva out because she is not a sworn enemy of Beijing.'

Shanta Devarajan, who helped oversee the World Bank's "Doing Business" report in 2017, also said that he never felt any pressure to change China's scores and alleged that the WilmerHale report used 'only half of his statements.'

The Economist, leading global weekly, however, argued in its editorial that 'Georgieva, an esteemed servant of several international institutions, should resign.' Financial Times, in its editorial, took a comparatively soft stance saying: "Georgieva's two years at the IMF have been otherwise solid. All the more reason she must not sweep this scandal under the carpet. The longer questions go unanswered, the more damage is done. "

Many earlier argued that the real value of the index is little due to its conceptual flaws. It focused more on the costs of regulations, not the benefits. Despite limitations, the index is a critical global indicator to measure a country's business environment. This drives some developing countries to improve their ranking by putting more effort into regulatory changes, at least on paper, instead of removing a number of barriers to doing business easily in the real world. Some think that improved ranking is the panacea for growth. For instance, Bangladesh Investment Development Authority (BIDA) projected Bangladesh to improve its position to 99th by 2021. Bangladesh ranked 168th out of 190 in the 2020 index. Again, methodological change in the index helped India to improve its ranking.   In 2014, India was ranked 142nd. It jumped to the 63rd position among 190 countries in the 2020 report.

Now the allegation of data tampering comes as a shock. This kind of shock is, however, overdue to thoroughly review the exercise of doing business index and contain developing countries to rush for improving their ranking only.

 

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