World Bank's Malpass Weighed Changes That Threatened China Rank

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(Bloomberg) — World Bank President David Malpass discussed altering the methodology of a high-profile report ranking countries’ business climates in ways that threatened to hurt China’s standing.

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Those talks came more than a year before senior officials suspended publication of the report, which was ultimately quashed last week after an outside audit cited pressure over an earlier edition by then-top official Kristalina Georgieva, now head of the International Monetary Fund.

The discussions took place shortly after Malpass, a China critic while he served as the top Treasury international official under President Donald Trump, became World Bank chief in April 2019, according to internal bank documents and people familiar with the events. They came after several years in which China had surged in the annual Doing Business rankings as a result of reforms pushed by Beijing.

The bank suspended publication of the often-controversial report in August 2020, citing “data irregularities” that had been found in previous years’ editions. That move also came after Malpass and other senior officials had been briefed on the rankings for that edition, known as Doing Business 2021, according to people familiar with the events.

The unreleased Doing Business 2021 report, which people familiar with it said was ready for publication and was seen by Bloomberg News, showed China rising to 25th in the world, from 31st in the previous year’s report. The report showed the U.S. holding at sixth. It was originally slated for release in October 2020 before being delayed and last week shelved for good.

This story is based on internal World Bank documents and interviews with more than a dozen people involved in the project over the last four years. They spoke on condition of anonymity to discuss sensitive matters, and some cited fear of retaliation from bank management.

In a response to questions from Bloomberg News, the World Bank said the 2021 edition had been paused due to data irregularities first raised by staff members in June 2020. It declined to confirm the rankings in the unreleased report and denied that China’s standing or other rankings had played any role in the decision.

No Pressure

In addition, any proposed changes to methodology were part of an institution-wide review, and Malpass didn’t pressure staff to consider any actions that would have affected the rankings of China or the U.S., the World Bank said.

“Any changes that were considered in Doing Business methodology were developed by technical Doing Business staff, consulted upon widely within the bank and reviewed as part of a standing bank-wide process informed by years of previous work,” World Bank spokesman David Theis said. Any suggestion otherwise owes to “unnamed sources with axes to grind.”

Malpass declined a request for an interview or comment.

The audit released last week, conducted by law firm WilmerHale, concluded that Malpass’s predecessor Jim Yong Kim and his top lieutenant Georgieva pressured staff to change the data to benefit China in the 2018 edition of the report. Georgieva has said she “fundamentally” disagrees with the audit’s conclusions; Kim didn’t respond to requests for comment.

The World Bank decided to discontinue Doing Business because “trust in it as a brand and as an index was too severely damaged to repair,” Malpass said in an internal note to staff Sept. 17.

In its response to Bloomberg News, the World Bank said the WilmerHale report spoke for itself. The law firm’s probe, which remains ongoing, focused on the 2018 and 2020 editions of the report. The audit said it didn’t identify any involvement in data changes by Malpass’s office related to the 2020 report, which was released in October 2019.

However, documents seen by Bloomberg News indicate Malpass was engaged in discussions about altering methodology in a way that would potentially have hurt China’s ranking in Doing Business 2021, an edition not addressed in the WilmerHale review.

Extra Cities

Around June 2019, more than a year before the August 2020 decision to withhold publication, Malpass discussed a proposal to double the number of representative cities in the report to four for the three countries with the largest population: China, India and the U.S., according to internal documents.

He also discussed restoring an ease of employment metric that had been dropped amid opposition from Democrats in Congress. Including that metric would have caused China’s ranking to fall four places and the U.S.’s to rise by three, the documents show.

“Just wanted to let you know informally that DM [Malpass] recently agreed with the Doing Business team to increase the number of cities from 2 to 4 covered by the index for countries with population over 300 million,” one of Malpass’s assistants wrote in a June 2019 email, seen by Bloomberg News, to other senior World Bank staff. “This impact [sic] China, India and United States. In China, the sample will include the third and fourth largest business cities: Chongqing and Guangzhou.”

In the email Malpass’s assistant said the president would be discussing it with senior Chinese officials. She also pointed to restoring the “Employing Workers” indicator, which if included “may impact China negatively.”

In December 2019, Malpass wrote then-Treasury Secretary Steven Mnuchin that while the bank had been considering restoring the indicator, it decided to leave it out of the rankings after “input from you and other stakeholders,” according to a letter released by the House Financial Services Committee.

The change in the number of cities was rejected for Doing Business 2021 after staff looked at the work involved, according to a February 2020 internal World Bank memo.

The data for the Doing Business 2021 covered the period through May 1, 2020, with staff preparing their initial analyses and circulating them internally for discussion over the summer.

Rankings Presented

The bank announced on Aug. 27, 2020, that it was suspending publication of the Doing Business report, citing “data irregularities,” and ordering reviews of the matter. This came more than two years after former chief economist Paul Romer raised questions about changes to the report’s methodology that made rankings volatile.

What the World Bank didn’t say, however, was that days before the August 2020 announcement, Malpass and other top bank officials were presented with rankings for the 2021 edition of the report showing China advancing, people familiar with the matter said.

In its response to Bloomberg News, the World Bank said the Doing Business 2021 report’s release had been paused since August 2020 because concerns were raised by staff in June 2020 about data integrity.

The unreleased Doing Business 2021 report seen by Bloomberg News, however, shows that its authors wrote they had addressed the data irregularities raised and that they had found no other issues amid more rigorous scrutiny than before. “All data in Doing Business 2021 received three levels of formal review and approval in the data management system, implementing checks and balances,” the authors wrote.

The World Bank said in its response to Bloomberg News that the series was ultimately discontinued because the recent reviews and audits identified additional concerns.

The episode has illustrated how the World Bank and IMF’s top officials are increasingly squeezed between the geopolitical ambitions of the world’s two largest economies. The U.S. has been the biggest shareholder at both institutions since their advent in Bretton Woods, New Hampshire, at the close of World War II. China has been advocating for a larger role in the past decade. The two countries are locked in a trade war and are also jockeying for strategic position in the Indo-Pacific region.

Malpass, 65, became World Bank president in April 2019 after being nominated by Trump for the job traditionally occupied by a U.S. pick. In his previous post as the U.S. Treasury’s undersecretary for international affairs he was a regular critic of China and its growing role in the global economy. He was also a skeptic of the country’s reform credentials.

Before joining the Trump administration, Malpass spent more than a decade as an economist at Bear Stearns Cos. He had served prior Republican presidents, worked as an aide on Capitol Hill and run unsuccessfully for the party’s nomination for U.S. Senate in New York in 2010.

China’s ‘Inroads’

In November 2018 testimony to a Senate subcommittee while he was at Treasury, Malpass bemoaned the “substantial inroads” China had made into multilateral development banks like the World Bank.

“We are working with allies and like-minded countries to guide the MDBs away from what could be viewed as endorsement of China’s geopolitical ambitions,” Malpass said.

As well as giving validation to its policies, a further gain for China in the rankings could have been an embarrassment for Trump as he campaigned for re-election on both what he hailed as a pro-business record and his economic war against the Asian power. It also would have likely complicated Malpass’s relationship with Trump’s White House and Treasury Department.

The Doing Business series has long been both controversial and influential, with nations often lobbying for changes in their rankings. The bank has also for years conducted a parallel business selling consulting services to countries on how to improve their rankings — a practice that reviews have flagged as a conflict of interest.

In a report not released publicly but seen by Bloomberg News, the bank’s internal watchdog questioned just how much impact the Doing Business reports really had on member economies. But it also detailed the broad scope of that work.

“Doing Business also informs a substantial share of the World Bank Group’s projects providing financing, advice, and/or technical assistance to client countries on the business environment,” according to the report, dated Sept. 8. That “DB-informed portfolio” consisted of 676 projects worth $15.5 billion in World Bank loans from fiscal 2010 to 2020.

Surprise Decision

Even with the issues swirling around the report, the decision to cancel it surprised many board members and employees just weeks before the World Bank and IMF are scheduled to hold their annual meetings, the year’s biggest event for the lenders. Dozens of staff worked on the high-profile project and now need to be reassigned; almost 15,000 “local partners” in 191 economies around the world helped collect data.

In addition, work on the 2022 edition of the report was largely complete but without rankings, people familiar with the matter said. They said a recent plan was to release both the delayed 2021 and new 2022 reports together in December of this year.

In its response, the World Bank said it had never had a firm timeline for the release of any further Doing Business reports, as they were dependent on the outcome of various investigations.

Mauricio Cardenas, a former Colombian finance minister who led an independent experts’ review of the report’s methodology released this week, said all of the discussions that panel had with bank officials in recent months were focused on how to reform the report rather than whether to discontinue it.

“We had many meetings with many different groups within the bank. There were many criticisms, but it was always focused on reforms, changes,” he said in a phone interview. “If there’s no Doing Business, something needs to fill that space.”