Last week brought the annual meetings of the IMF and World Bank Group in Washington. The formal agenda has been dominated by the global response to the COVID-19 pandemic and climate change yet, try as we might, we cannot overlook the investigation into the conduct of the Fund’s managing director, Kristalina Georgieva. A Washington law firm was mandated by the Bank to examine suggestions that its Doing Business 2018 report was doctored in favour of China when Georgieva was chief executive at the Bank (before succeeding Christine Lagarde at the Fund in 2019). According to some reports, Saudi Arabia was also a beneficiary of the alleged doctoring.
A statement by the Fund’s executive board on 11 October expressed its confidence in her leadership. That said, its view that the evidence “did not conclusively demonstrate that the managing director played an improper role” falls well short of a ringing endorsement. The statement noted that inquiries continue at the Bank as to what did and did not happen. There are two losers from this episode, namely the Doing Business reports (which have been shelved) and the standing of the Bretton Woods duo. It has also highlighted the unwritten understanding by which rich countries share the top positions at the Fund and the Bank.
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Both member governments and the great and good among development economists have lined up for and against Georgieva on grounds that do not fully reflect the merits of the case. The US and Japan are said to have favoured a change in managing director, with their position influenced by the Biden presidency’s tough diplomatic stance on China. The main European countries have supported the status quo. The US appears to have backed down although the fact that the board met eight times to discuss the issue tells us that its change of heart was a gradual process.
Some high-profile development economists have claimed that Georgieva had been targeted because she has pushed reform and a new direction in Fund policy. She has presided over the largest general allocation of SDRs in the Fund’s history and the launch of two credit windows, both free of the usual policy conditionality, for members most vulnerable to the pandemic. Yet it is legitimate to ask whether another head of the Fund, confronted by COVID-19, would not have acted similarly. If we are to believe the Financial Times, a PR agency, retained by Georgieva, issued a letter in support of the managing director from 16 African finance ministers.
It would be difficult to resume the Doing Business they have been a useful tool for investors, governments, and commentators. The FGN is not alone in having set targets for the country’s position in the league table. There are of course examples, often in primary commodities, where a company will invest in a country despite its low ranking.
We will miss the Doing Business series although the greater damage has been to the standing of the Fund and the Bank
Generally, however, the reports have been a reliable indicator as to the business-friendliness of governments. The rise of Rwanda up the table over the years has been a case in point: for its size, it has secured disproportionately large flows of foreign direct investment. This is a loss although investors have access to other business reports with rankings such as the annual Global Competitiveness Report produced by the World Economic Forum.
We will miss the Doing Business series although the greater damage has been to the standing of the Fund and the Bank, not forgetting their research and data. The two institutions lie at the pinnacle of what is pretentiously called international financial architecture. Like any organization, they are weakened by flaws in leadership. The episode also fuels the distrust of the poorer countries that make up the vast majority of the membership. It does not help that these countries are not represented in the leadership.
By unwritten convention, the managing director of the Fund is European while the US appoints the head of the World Bank. Some of the more recent selections have undermined the credibility of the institutions. The valid impression that G7 countries parcel out these and other top positions in a game of musical chairs for domestic political convenience is harmful. Ngozi Okonjo-Iweala may be the first African and first woman to head up the World Trade Organisation but was surely the best-qualified candidate for the Bank’s presidency in 2012. Not only had she been the Nigerian finance minister for seven years under two heads of state but she also had many years’ experience of working at the Bank. However, she missed out because she was not the preferred candidate of the US administration.
The Fund’s board and managing director will hope that the spotlight will now be fixed on the Bank’s internal investigations and that their conclusion will be manageable. Perhaps this will be the chain of events. Mud tends to stick, however, and sadly the Bretton Woods duo has taken another sizeable reputational hit.
Kronsten, is a Consultant, FBNQuest Securities
