Fragmentary affairs at the World Bank
The World Bank’s announcement last week that it had halted its annual “Doing Business” report due to “data irregularities” in the 2018 and 2020 editions of the report surprised most people, although Rumors that something is brewing have been circulating since the middle of last year. The underlying story, contained in the report of the external auditors hired to investigate the matter, is both interesting and disturbing.
The “Doing Business” report wasn’t a fan favorite, so to speak (see Wednesday’s editorial), but its demise is another unfortunate case of the World Bank looking unusually awkward. Other examples in recent memory include World Bank President David Malpass, who proclaimed himself in February of last year with non-diplomatic (and indeed, completely mistaken) criticism of the Asian Development Bank and the African Development Bank; and in July of this year, his outrageous and indulgent reaction to the whining of Education Secretary Leonor Briones about the unflattering findings of a report of no consequence to the Philippine education system.
Although it only became apparent last week, this latest incident, in which the World Bank bent to a client’s will and withdrew the otherwise accurate report from public access after Briones in spoke thoroughly, was a clue that a Reuters report on Tuesday characterized as “deeper rot” within the institution. The 16-page investigative report of the External Auditors, a team at international law firm WilmerHale, explains in rather blunt terms what this “deeper rot” is.
According to World Bank statements, the “irregularities in the data” were first reported and launched an internal investigation in June 2020. At this point, the Bank “suspended” work on what would have been the “Doing Business 2021” report until a review could be completed. “In addition,” the World Bank said in a Sept. 17 statement, “as internal reports raised ethical issues, including the conduct of former Board officials as well as current staff and / or formerly of the Bank, management reported the allegations to the Bank authorities. appropriate internal accountability mechanisms.
In its report dated September 15, WilmerHale’s investigative team explained that it sought to answer three questions: First, how “inappropriate data changes” for China in the “Doing Business 2018” report, and for Saudi Arabia, United Arab Emirates and Azerbaijan in the 2020 report have been achieved; second, who within the Bank led, implemented or was aware of the changes; and third, what circumstances, whether related to people, policies or organizational culture, made the changes happen.
Turning to Chinese data in the 2018 report, investigators found that Chinese government officials pressured the World Bank to improve the country’s rating, which they said “did not accurately reflect government economic reforms, “which is roughly the same statement made by all countries (like the Philippines) that have ever been unhappy with their place in the” Doing Business “rankings. China, however, is a major contributor and shareholder of the World Bank, and at the time, the World Bank was in the midst of a critical campaign to increase its capitalization.
WilmerHale was careful to point out that there was no indication the Chinese government had done anything improper, but World Bank President Dr Jim Yong Kim obviously understood the hint: Beginning in September 2017, Kim’s office began lobbying the team responsible for preparing the 2018 report, which would be released on October 31, 2017. At a meeting called by Kim on October 17 to discuss the draft report 2018 report, in which China was ranked 80th (two places down from the previous year), it was decided to incorporate data from Hong Kong SAR – which is generally separate from China in the report – in order to improve China’s ranking; in doing so, the country reached the 70th rank. Interestingly, despite being included in China in terms of data, Hong Kong was still listed separately in the final report (and also featured in the following two “Doing Business” reports).
Regarding the “Doing Business 2020” report, WilmerHale at least found that there was no evidence of any involvement of the President’s office or the board of directors of the World Bank in the shenanigans that were uncovered, but the shenanigans were nonetheless complete.
The situation with Saudi Arabia was similar to that of China two years earlier, in that the kingdom was a major client of the Bank which was not very satisfied with its ranking; in this case, Saudi Arabia had a “full set” of Reimbursable Advisory Services (RAS) contracts with the Bank, that is, paid advisory and analytical advisory services. A few data points were changed outright to give Saudi Arabia a higher score, one of those involving Saudi Arabia’s value added tax (VAT) procedures. The UAE got dragged into it because, in order to muddy the waters, the Doing Business team made a similar change to their data, as the UAE has a similar tax system; the changes, however, did not change the UAE’s ranking.
Regarding Azerbaijan, steps have been taken to lower its ranking in the “Doing Business 2020” report, apparently due to political opinions within the department that wrote the report. The Azeri government was believed to be pressuring private sector respondents to the Doing Business survey to portray certain economic reforms in a more positive light. Although an internal review by the World Bank team confirmed that the data provided was more or less accurate, persistent skepticism led to the “freezing” of some indicators, lowering Azerbaijan’s overall score. The official involved defended his decision during WilmerHale’s investigation – confirmation that the implicated indicators were indeed correct was only available after the report was released – but admitted that the Azeri government should have been informed change, and if it was still needed, it should have been incorporated into a future report.
As noted, the investigation report was made available on September 15 and was so traumatic that the World Bank board immediately ordered the “Doing Business” report to be discontinued for good; this decision was made public on September 17. The internal spinoffs are likely to continue for some time as the work of the Bank’s Ethics and Business Conduct Office continues.
Externally, the whole drama is yet another very public black eye that the World Bank doesn’t need. There’s never a good time for that, of course, but the embarrassment is especially acute now that the Bank is trying to maintain its place and operate productively amid the two global monsters of the coronavirus pandemic and of the response to climate change. Provided its management commits to it, it should be relatively easy to correct the bank’s toxic and dysfunctional culture. Fixing his crumbling reputation, however, is going to be much more difficult work.