The future of multilateralism hangs in the balance. At least, that was the thought running through then-CEO of the World Bank Kristalina Georgieva’s mind as she presided over a precarious capital increase campaign from mid-2017 to April 2018. Key shareholders were threatening to reduce their financial commitments, and Georgieva feared the Bank would be in “very deep trouble” if the fundraising push faltered short of its goals. In this context came repeated communications to Bank leadership from senior Chinese officials disappointed with their country’s ranking in the Bank’s 2017 Doing Business report, an annual assessment of countries’ regulatory environments and their ability to facilitate private enterprise. The officials insisted that recent economic reforms entitled Beijing to an improved score in the 2018 edition about to be published. However, the new report’s final version placed China seven spots below its previous appraisal, much to the dissatisfaction of Georgieva and other World Bank leaders. Beginning in October 2017, she became “directly involved” in a concerted effort to inflate China’s rating—one that initially considered incorporating figures from higher-performing Hong Kong, Taiwan, or Macao, then weighed changes to statistical methodology, and settled on the alteration of several performance indicators by the Doing Business team under pressure from Georgieva. Ultimately, China landed back where it was on the list in 2017.
All of the above revelations stem from an investigation, requested by the Bank’s ethics committee and conducted by the law firm WilmerHale, into data irregularities in the 2018 and 2020 editions of Doing Business. Georgieva, who has served as managing director at the International Monetary Fund (IMF) for the past two years, vehemently denied the allegations that she forced her staff to boost China’s standing through data manipulation, and her lawyer claimed procedural and substantive errors with the probe. After multiple sessions of debate over the evidence, the IMF’s executive board proclaimed its “full confidence in the Managing Director’s leadership” and its trust “in [her] commitment to maintaining the highest standards of governance and integrity in the IMF.” Much could be said alone about the board’s decision not to remove Georgieva from her post, but the WilmerHale investigation’s findings merit broader consideration of the World Bank’s and IMF’s credibility, or lack thereof. Although the twin institutions ostensibly function as independent bodies tasked with promoting and evaluating the health of the global financial system, their activities are swayed by the whims of their largest shareholders, and in turn by geopolitical currents.
The creation of the World Bank and the IMF in the wake of World War II was framed as an apolitical initiative to revitalize the global economy and ensure its stability for the future. While their precise operations have fluctuated over time, today, the IMF focuses on providing short- and medium-term loans and policy recommendations to help countries resolve balance-of-payments problems, whereas the Bank directs its efforts toward long-term economic development and poverty reduction. Importantly, they have also cultivated reputations for being repositories of knowledge and expertise with scores of distinguished thinkers contributing to fresh research and analysis. Indeed, as the Bank’s flagship publication, Doing Business became the dominant international scorecard monitored by financial investors and governments eager to attract foreign capital alike.
The WilmerHale discoveries, though, pierced the aura of technocratic excellence and integrity surrounding the World Bank. Not only did Bank officials cave to pressure from China in 2017-18 and artificially augment its position on the Doing Business ladder, but they also made similar dishonest accommodations for Saudi Arabia in the 2020 issue. The Bank also increased its engagement with China and Saudi Arabia in response to their outreach by setting up advisory projects in both countries, which would at once generate revenue for the Bank and bolster the countries’ Doing Business rankings. According to WilmerHale, this dynamic effectively created “the impression of a pay-to-play scheme where countries agree to pay for [Reimbursable Advisory Services] in exchange for an increase in their Doing Business rankings.” With the politicization of Doing Business 2018 and 2020 exposed—along with the inherent subjectivity of the rankings that allowed such targeted modifications to be made at all—the Bank opted to discontinue the report as it works on a “new approach to assessing the business and investment climate.”
US Republican lawmakers were quick to condemn China for influencing the Doing Business report, but the United States itself has historically exercised significant control over the activities of the World Bank and the IMF. Throughout the 1980s and 1990s, the “Washington Consensus” doctrine that glorified unlimited growth and espoused free-market policies like deregulation, privatization, and trade liberalization, guided both institutions’ lending practices vis-a-vis countries in need. The Bank and the IMF conditioned their resources on the implementation of a similar range of market-oriented reforms and accordingly functioned as agents of the emerging neoliberal ideology at the expense of developing countries, which were forced to neglect spending on health, education, and development and instead prioritize debt reduction.
Moreover, even though the IMF claims to base its loans on a “Doctrine of Economic Neutrality” that prohibits political considerations, its structure makes it an inherently political institution. Since each country’s representative on the IMF’s executive board is appointed by its home government, the representatives carry the interests of their respective nations into decision-making processes. IMF staff are more insulated from these motivations, but the executive board must sign off on all proposals. The veto threat thus discourages the recommendation of loan packages that the board would deem unsuitable. Furthermore, since voting shares are determined by the size and “openness” of the member nation’s economies, poorer countries in the Global South are underrepresented while the United States and Europe wield outsized authority. Exacerbating the power imbalance is an opaque “gentleman’s agreement” between the United States and European countries that has placed a US national and a European in the top job at the Bank and the IMF, respectively, dating back to the institutions’ births.
The Georgieva scandal has brought into focus a central paradox within the World Bank and the IMF. On one hand, they exist to provide legitimacy to a liberal international economic order—defined by free trade, open markets, and cooperation—by supporting its weakest members with short- and long-term loans among other services. Nevertheless, these institutions inherently favor their strongest members, who also happen to dominate on the very same world stage. What follows is a system in which rich, predominantly Western countries not only reinforce their own hegemony by participating in multilateral organizations but also dictate the terms on which poorer ones can supposedly reach higher standards of living, all under the guise of fairness and neutrality. In other words, the game is rigged, and the consequences are destructive.
Take the loans conditioned on capitalist economic reforms, or Structural Adjustment Programs (SAPs), as an example. After the implementation of SAPs in Africa throughout the 1980s, government expenditures on healthcare as a percentage of GDP plummeted. The policy originated from a 1981 World Bank study that criticized excessive spending on social programs and advocated significant reductions in healthcare spending even as many African nations lacked functioning hospitals, clinics, and equipment and sufficient staff. When the 2014 Ebola epidemic broke out in West Africa, countries like Liberia found themselves without the healthcare infrastructure necessary to keep it from spiraling out of control. Then-Managing Director of the IMF Christine Lagarde implicitly admitted to the flawed recommendations, conceding, “It is very rare to say that, but on this occasion I will say it: It is good to increase the fiscal deficit when it’s a matter of curing the people.” Today’s Managing Director has shown no such remorse, and despite a credible account of her misconduct courtesy of WilmerHale, the wealthiest nations gave her a pass. Against that questionable vote of confidence, the US Treasury’s calls for more robust action to boost data integrity at the World Bank and the IMF ring hollow. The Georgieva controversy presented a chance to chart a new path for both institutions characterized by greater equity and more objective standards for leadership, but—perhaps unsurprisingly—the countries pulling the strings opted for the status quo. The future of multilateralism might be at stake after all.
Photo by Markus Krisetya on Unsplash