Analysis: Attempted Coup in the IMF?
Analysis by Joseph Stiglitz, American economist and Nobel laureate, comments for Project Sindicate
Set in motion are actions to eliminate or at least significantly weaken the operations of Kristalina Georgieva, Managing Director of the International Monetary Fund from 2019. The same Georgieva, who responded perfectly to the pandemic and quickly provided funds to prevent countries from sinking and cope with the health crisis. She has successfully defended the IMF's $ 650 billion "special drawing rights" (SDRs), which are very important for the recovery of low- and middle-income countries. Moreover, she has made the fund one of the main leaders in responding to the existential crisis of climate change. Georgieva should be applauded for all this. What is the problem then? And who is behind the attempt to discredit and remove her?
The problem is in a report commissioned by the World Bank from WilmerHale in connection with its annual Doing Business Index, which ranks countries according to how easy it is to register and manage companies. The report contains allegations - or rather "hints" - of irregularities related to China, Saudi Arabia and Azerbaijan in the 2018 and 2020 indices.
Georgieva was attacked for the 2018 index, in which China is ranked 78th, the same as the previous year. But there is also a suggestion that the position should be lower, and this did not happen as part of a deal to secure Chinese support to increase the World Bank's capital, which the bank then insisted on. At that time, Georgieva was the chief executive officer.
The positive result of this episode may be the cessation of reports on this index. A quarter of a century ago, when I was the chief economist of the World Bank and Doing Business was published by another department, the International Finance Corporation, I thought it was a terrible product. Countries received good ratings due to low corporate taxes and weak labor market regulations. The data was always "slippery", with small changes in them leading to a potentially large effect in the ranking. Inevitably, the countries were disappointed when seemingly random decisions led to a decrease in their ranking in the index.
After reading the WilmerHale report, talking directly to key stakeholders and knowing the whole process, the whole investigation looks like a relentless personal attack to me. All the while, Georgieva acted entirely professionally, doing exactly what I would have done (and which I sometimes did as a chief economist): insist that those working for me make sure the data was accurate or, as accurate as possible, accurate, given the initial limitations of the information.
Shanta Devarajan, head of the Doing Business oversight department, who reported directly to Georgieva in 2018, insists he has never been under pressure to change data or results. The bank's employees did exactly what Georgieva instructed them to do, and re-checked the data, introducing minimal changes leading to a slight improvement in the revised version.
The WilmerHale report itself is interesting for many reasons. He gives the impression that there was a favor for a favor: the bank is trying to increase its capital and in return is improving China's ranking to help it get it. But Beijing was the most enthusiastic supporter of capital increase. The United States under Donald Trump was slow. If the goal was to ensure an increase in capital, the best way would be to downgrade China.
The report does not explain why the entire testimony of Devarajan, who personally knows what Georgieva said, is not included. "For hours, I told my part of the story to the bank's lawyers, who included only half of what I said," Devarajan said. Instead, the report deals mainly with insinuations.
The real scandal is actually the WilmerHale report, including how David Malpas, the president of the World Bank, escaped unscathed. The report notes another episode - an attempt to increase Saudi Arabia's ranking in Doing Business in 2020, but concludes that the bank's management has nothing to do with what happened. Malpas will go to Saudi Arabia to campaign for reforms based on Doing Business only a year after Saudi security officials killed and dismembered the body of journalist Jamal Kashoji.
It seems that whoever pays, also orders the music. Fortunately, investigative journalism revealed far worse things, including Malpas' brutal attempt to change Doing Business's methodology to downgrade China.
If WilmerHale's report can be described - at best - as a defamation order, then what are the reasons? Not surprisingly, some are unhappy with the direction the IMF has taken under Georgieva. Some think that the fund should stick to its core mission and not commit to climate change. Others do not like the turnaround, which places greater emphasis on tight fiscal policies and more on poverty and development, as well as on a greater awareness that there are limits to what markets can achieve.
Many financial market players are unhappy that the IMF does not appear to be using force as a lender - a central part of my criticism of the fund in my book "Globalization and Its Discontents". In Argentina, debt restructuring began in 2020 and the fund has shown that there is a limit to what the country can repay, ie. how sustainable debt is. Because many private creditors wanted the country to pay more than was sustainable, only this simple act changed the negotiating framework.
There were then manifestations of the long-standing institutional rivalry between the IMF and the World Bank, highlighted now by the dispute over who would manage the proposed new fund to "recycle" the new SDRs for everyone, from developed to poor economies.
To this can be added the isolationist current in American politics embodied by Malpas, the election of Donald Trump - combined with the desire to weaken President Joe Biden, creating another problem for the administration, facing so many other challenges. And finally, the usual interpersonal conflicts come.
But political intrigue and bureaucratic rivalry are the last things the world needs at a time when the pandemic and its economic consequences have left many countries facing debt crises. More than ever, the world needs Georgieva's strong hand at the helm of the IMF.
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