The World Bank in January this year admitted to repeatedly changing the methodology of one of its flagship economic reports for over four years in ways that were imbalanced and misrepresentative. A blunder from international institutions like the International Monetary Fund and the World Bank could be a catalyst for chaos, because their forecast and recommendations play significant roles in the economic strategies of countries.
This time, Chile was affected by the admitted error. The country’s recent decline in the annual World Bank “Doing Business” report rankings was attributed to methodological changes, as confirmed by World Bank’s chief economist, Paul Romer. Beyond the negative impact World Bank’s methodological inaccuracy can have on a nation’s position, the alteration can harm its credibility as an institution that must count on the confidence of the international community.
World Bank reports cover economy activities in several countries in the world, concentrating on long-term economic development and poverty reduction. The bank strives to establish a framework for economic cooperation and development that would lead to a more stable and prosperous global economy.
An error from World Bank is potentially damaging to not only specific economies but also the world’s economy at large. Governing authorities make informed decisions in key sectors of a nation that include how to improve growth and productivity based on numbers and projections from the institutions like the World Bank. And its report have been widely used by academics, policy-makers, politicians, development experts, journalists and the business community to highlight red tape and promote reforms.
Doing Business is a controversial study, and some of its passionate critics have questioned the reliability and objectivity of its measurements, while others doubt the relevance of the issues it addresses. Critics including the International Trade Union Confederation fear it may unduly dominate the reform agenda of countries at the expense of more crucial development objectives. Attention given to the indicators may inadvertently signal that the World Bank Group values less burdensome business regulations more highly than its other strategies for poverty reduction and sustainable development.
The World Bank chief economist’s announcement, that past releases of the index would be corrected and recalculated going back at least four years, seemed to solidify doubts surrounding the report as other countries have often criticized the report of favoring countries that aligns with its standards for economy regulations.
Though this is the first of its kind, the methodological error in Doing Business report has been alleged to be politically motivated since it was not driven by an actual deterioration in the South American nation’s business environment. Over the period of these alterations, Chile alternated between electing socialist Michelle Bachelet and conservative Sebastián Piñera to the presidency. When Piñera was in office, Chile would climb in the rankings; when Bachelet was in office, the country would fall.
Pinera, who campaigned on increasing investment and eventually cutting corporate taxes in his bid to expand Chile’s economy, was said to have been favored by the World Bank report. The former director of the group responsible for the index was also reported to have repeatedly manipulated its methodology, unfairly penalizing the country’s rankings during the administration of left-wing President Michelle Bachelet.
Bachelet administration over the years have been signified with ”making a tabula rasa with the free market institutions that had enabled Chile to become the most prosperous country in Latin America,” taking note of the socialist government massive tax reform that raises the corporate tax in Chile leaving it above the OECD average and the administrations emblematic pension system program.
Having declared that she shared the same goals as former Marxist president Salvador Allende who ran the country from 1971 to 1973, and clarifying that unlike Allende, her administration is not seeking to make Chile a communist regime, it is no secret that to a large extent Bachelet endorses an old-fashioned statist philosophy.
Bearing this in mind, there is the need to question the activities of the World Bank report as regards influencing the political climate of Chile during that period, as the Sebastian Pinera’s projects aligns more with that of the international institution that seeks to influence regulation ad reforms that matters for the development of the private sectors, and enable the business environment.
It raises concerns about other errors and manipulations that might have occurred over the years. What is the assurance that this would only be a one time thing? Do countries at large still trust the World bank assessments? What downward trends would this carelessness set in the international community and how would these affect individual economies in the world at large?
This year marks the 74th anniversary of the World Bank as the institution will attempt to highlight its “assistance” to Africa over the years. But in reality the institution has gradually become one of the chief architects of policies known as “the Washington Consensus”, which are responsible for the worst inequalities and the explosion of poverty in the world, especially in Africa.
With the main pretext for its intervention as “helping solve” the debt crisis that hit African countries in the late 1970s, following the combination of internal and external shocks, notably sharp fluctuations in commodity prices and skyrocketing interest rates, the World Bank and International Monetary Funds proposed remedy, known as stabilization and structural adjustment programs (SAPs), achieved the opposite, and contributed to worsening the external debt and exacerbating the overall economic and social crisis.
The continent’s biggest economy, Nigeria, is a good example of the structural nature of Africa’s debt crisis and of the power imbalance that characterizes world economic and financial relationships. It is this general context that allowed the IMF and World Bank to increase their influence in African countries. One good illustration of this has been the rapid rise in the share of the World Bank and its affiliate, the International Development Association (IDA), in SSA’s debt. According to the World Bank, the combined share of both, which was barely 5.1% of SSA’s total debt in 1980 jumped to 25.0% in 1990 and to more than 37% in 2000.
The World Bank group has become the principal “creditor” of many Sub-Saharan countries, which explains the enormous sway it holds over these countries’ policies. Imposition of stiff conditionalities on African countries in exchange for loans and credits, is one of the numerous ways the institution exercises its influence over these countries.
Having an error in its Doing Business ranking is one out of numerous signs that indicate the need for countries to review their relationship with the institution. Especially African nations that are yet to see that the World Bank cannot be trusted to bring about “development” in Africa. Today its Chile, tomorrow it could be the entire African continent. Its time Africa holds on to the fundamental lesson that the road to genuine recovery and development begins with a total break with the failed and discredited policies imposed by the World Bank.