World Bank has a shareholder-engagement problem

The World Bank is the biggest provider of climate finance to developing countries, who are least able to afford the costs of decarbonisation

  
International Monetary Fund (IMF) Managing Director Kristalina Georgieva speaks during a joint news conference at the end of the Summit on the Financing of African Economies in Paris, France May 18, 2021. Ludovic Marin/Pool via REUTERS

International Monetary Fund (IMF) Managing Director Kristalina Georgieva speaks during a joint news conference at the end of the Summit on the Financing of African Economies in Paris, France May 18, 2021. Ludovic Marin/Pool via REUTERS

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

LONDON - Economic heft often equates to political clout. But pandering too much to big powers can have negative repercussions, as the World Bank is discovering.

The multilateral lender’s leaders, including then-Chief Executive Kristalina Georgieva, in 2017 applied pressure on staff to boost China’s ranking in a report on the ease of doing business, according to an independent investigation published on Thursday. Georgieva, now head of the International Monetary Fund, said she disagreed fundamentally with the findings and interpretation of the report. Nevertheless, the details make for uncomfortable reading. World Bank officials appeared more concerned about keeping China happy than the integrity of a widely followed report that offers businesses a guide to how countries score on issues like the ease of paying taxes or flexibility of hiring.

This approach could be dismissed as realpolitik that mitigates pro-U.S. bias inherent in an institution that was, like the IMF, set up to aid post-World War Two reconstruction efforts. But that would underestimate how damaging such tactics might be for organisations whose financing capacities are needed to tackle some huge challenges, chiefly climate change and how to help poorer countries emerge from the pandemic.

The World Bank, run now by David Malpass, is the biggest provider of climate finance to developing countries, who are least able to afford the costs of decarbonisation. And the IMF last month distributed about $650 billion in new Special Drawing Rights, its quasi-currency, as part of a drive to help combat the economic damage inflicted by Covid-19. The kerfuffle over the ease-of-doing-business report distracts from such good work and hands ammunition to critics of the two organisations, especially in the United States, which is the World Bank’s biggest shareholder.

True, having countries as shareholders sets up a peculiar dynamic that requires the reconciliation of conflicting national interests and priorities. But there are anachronisms that could be ditched to reduce big-country biases. First and foremost is the tradition of appointing an American as the head of the bank. This would be a good start to improving shareholder engagement at an institution whose work has the potential to help progress towards a fairer and greener planet.

CONTEXT NEWS

- World Bank leaders, including then-Chief Executive Kristalina Georgieva, applied “undue pressure” on staff to boost China’s ranking in the bank’s “Doing Business 2018” report, according to an independent investigation published on Sept. 16. The report was prepared by law firm WilmerHale at the request of the bank’s ethics committee.

- Georgieva, who is now managing director of the International Monetary Fund, said she disagreed “fundamentally with the findings and interpretations” of the report and had briefed the IMF’s executive board on the matter.

- The World Bank Group cancelled the entire “Doing Business” report on business climates, saying internal audits and the WilmerHale investigation had raised “ethical matters, including the conduct of former Board officials, as well as current and/or former Bank staff.”

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Rob Cox and Oliver Taslic) ((For previous columns by the author, Reuters customers can click on PATTANAIK/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | swaha.pattanaik@thomsonreuters.com; Reuters Messaging: swaha.pattanaik.thomsonreuters.com@reuters.net))


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