IMF chief risks undermining authority after China-related probe

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(Bloomberg) – Kristalina Georgieva risks seeing her authority as head of the International Monetary Fund undermined just weeks before an annual meeting of global CFOs, after being accused of swaying a report in favor of China when worked at the World Bank.

Georgieva said on Thursday that she “fundamentally disagrees” with the conclusion – by an external law firm hired by the World Bank – that she had pressured bank staff to improve China’s ranking in an economic report. She briefed the IMF’s board on the allegations on Thursday and will speak to fund staff on Friday, people familiar with the matter said.

The substance of the charge – putting “undue pressure” on World Bank staff to adjust the rating in the “Doing Business” report when she was managing director – was the latest in a string of scandals who plagued the troubled report. in recent years. The report’s methodology, which measures the ease and transparency of operations in an economy, is so besieged, subjective and controversial that the World Bank announced it would stop producing it.

But for 68-year-old Georgieva, the exam may be just beginning.

The ranking she is accused of pressuring staff to improve is that of China, a magnet for criticism in Washington on everything from trade to geopolitics. The US Treasury considers the charges serious and “is analyzing the report,” the department said; the United States has a right of veto over major decisions of the IMF and the World Bank. Republican lawmakers could use the question to renew criticism of an increase in IMF resources under Georgieva’s leadership.

“Pretty damned”

Justin Sandefur, senior researcher and World Bank observer at the Center for Global Development, a think tank, said the report could end up affecting his relationship with IMF members.

“The IMF is responsible for ensuring the integrity of international macroeconomic statistics and for holding countries to account for the integrity of their data,” Sandefur said in an interview. “This report simply implicated Georgieva in the act of manipulating data for geopolitical purposes. It sounds pretty overwhelming.

(Read the details of the report commissioned by the World Bank in this previous article.)

The episode provides a rare window into how China has exerted influence over the heads of international financial institutions in recent years and the responsiveness of these senior officials to Beijing’s sensitivities.

The World Bank-commissioned report, written by lawyers for WilmerHale, is doing everything possible to exonerate China from doing anything wrong. “To be clear, our review should not be interpreted as implying that there has been improper conduct on the part of any Chinese official or otherwise,” they wrote.

Engagement in China

Georgieva was the bank’s CEO under Jim Yong Kim, who was appointed by President Barack Obama and spent much of his tenure as President of the World Bank carrying out geopolitical work, often out of necessity. He worked hard to build a relationship with both China and the rival of his own institution it had created – the Asian Infrastructure Investment Bank.

Kim’s current employer, an investment fund called Global Infrastructure Partners, did not respond to a request for comment on Thursday’s report.

Politics only became more difficult as China became more assertive under President Xi Jinping and relations between Washington and Beijing became more strained on a number of fronts, including trade and commerce. ‘economy.

Paul Romer, the Nobel laureate who was the World Bank’s chief economist until his departure in early 2018 – after falling out with Kim and Georgieva – said in an interview that China had often pressured bank staff to edit draft reports. It was his final critique of the “Doing Business” process, in an interview with the Wall Street Journal, that led to the investigation of the report and the politics surrounding it.

Read more: World Bank corrects country ranking after modified data investigation

China’s position in the 2018 report, released in October 2017, should have been seven places lower – at No. 85 rather than 78 – the World Bank said in a review released last December. Kim and Georgieva had influenced a scoring reshuffle, WillmerHale found.

“You couldn’t have designed a more embarrassing collection of facts for Kristalina in the face of the fund’s critics on Capitol Hill,” Sandefur said.

IMF integrity

Georgieva, the first IMF chief from an emerging market – Bulgaria – oversaw a historic $ 650 billion expansion in reserve assets of IMF members to help countries cope with growing debt and the fallout from the covid pandemic19. Republican lawmakers criticized the move in part as a reward for undemocratic nations, including China.

GOP Representative Andy Barr of Kentucky, in a statement Thursday night, called the report “alarming” and urged the Treasury to “assess” Georgieva’s shares in the run-up to the allocation of this known money. under the name of Special Drawing Rights, in the light of the results report.

“Ensuring integrity at the IMF is essential,” Barr said.

According to the report and a person familiar with the events, Georgieva took charge of what was seen within the bank as an unusual intervention on behalf of China. In the past, senior executives had done their best not to interfere with the team overseeing the “Doing Business” report for fear of violating house rules, the person familiar with what happened said.

Prime Minister’s growl

She also intervened at a time of intense sensitivity in China on the “Doing Business” rankings. Earlier that year, Premier Li Keqiang complained about China’s poor performance, sparking an increase in national efforts to improve its performance. These efforts were too late to affect the 2018 rankings, although they later paid off. In the 2020 ranking, China finished 31st, ahead of France.

The issue was raised at least twice during dinners Kim had with senior Chinese officials on visits that year, according to the person familiar with the events. They were also raised by Chinese officials with Georgieva during a visit she made to the China Development Forum.

From the World Bank side, they also came as Kim and Georgieva were engaged in delicate negotiations with China, the United States and other members to increase the bank’s capital. In the end, China agreed to both a smaller stake in the bank than it wanted and higher interest rates on the bank loans it received as part of a plan to to defuse opposition from the Trump administration.

The episode detailed in the report highlighted an inherent tension in the leadership of the Washington-based IMF and World Bank, Romer said. Both are institutions where leaders have to be savvy diplomats to both earn and keep their jobs – which increasingly means gaining the approval of Beijing as well as Washington.

“Worth reading”

Yet these necessary policies may be at odds with their missions to be scrupulously independent stewards of important data and analysis. This means that the latest episode will come at a cost to the credibility not only of the World Bank but also of the IMF, Romer said.

Traditionally, under an unwritten transatlantic deal, Europe has chosen the managing directors of the IMF while the United States chooses the presidents of the World Bank. Georgieva is the second woman to head the IMF, after the current President of the European Central Bank Christine Lagarde.

Attention to the WilmerHale report is unlikely to fade quickly, according to longtime observers of the fund’s policy.

“The full report is worth reading, it’s something,” Stan Veuger, senior researcher at the American Enterprise Institute, a conservative Washington think tank, wrote on Twitter. “Some remarkable actions” from Georgieva, he said.

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