Bad for business: WB China rigging scandal rattles investors

World Bank leaders reportedly put “undue pressure” on staff to boost China’s ranking. [Courtesy]

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 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, the 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.