Today we are talking about the scandal at the World Bank. But before we get to today’s story let me just address what has been going on with this channel. I haven’t uploaded for about a month. In my last video, I explained how I am in the middle of a very large lawsuit. I just want to say thank you for your patience during this time as this lawsuit has taken a lot of my time and focus. I am not going to say anything about the lawsuit right now, but I will be making future statements at the appropriate time. Make sure that you subscribe to this channel and whatever social media platform you use so you don’t miss a video. The links for all my social media is in the description box below. Now let’s get into today’s story and talk about what is going on at the World Bank. WATCH NOW
Sources:
Bloomberg: https://www.bloomberg.com/news/articles/2022-02-09/world-bank-drafting-report-to-replace-canceled-doing-business
Reuters: https://www.reuters.com/business/imf-board-resume-debate-over-georgievas-future-later-monday-2021-10-11/
Reuters: https://www.reuters.com/business/exclusive-world-bank-denies-imf-chief-georgievas-bid-meeting-defend-herself-2021-10-26/
Wall Street Journal: https://www.wsj.com/articles/world-bank-unfairly-influenced-its-own-competitiveness-rankings-1515797620?mod=searchresults&page=1&pos=3
Financial Times: https://www.ft.com/content/be72f8e2-0144-11e8-9650-9c0ad2d7c5b5
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VIDEO SUMMARY
One thing I hate is government corruption. This is a story I have been following for a while. This is important for you to hear if you work in business or accounting, because it is a good example of how corruption works.
There are two major international financial institutions, the International Monetary Fund (IMF) and the World Bank. These are important institutions. The World Bank and the IMF were created at the Bretton Woods Conference in 1944 and are based in Washington DC.
There are some situations where you need a global bank, specifically for large multi-national infrastructure projects. For instance, if multiple nations in Africa want to build a powerplant that will service all of their countries, what bank do they go to for funding? If one nation’s bank funds the project, their interests could go against the other nations participating. For instance, if a US bank funds a large infrastructure project for African nations, the US has their own interests. At the same time, if China funds the same infrastructure projects, China has their own interests that they try to include in the loan terms. So it is necessary in certain situations to have an independent global bank to handle these complex financial issues. Another good example is funding the response to the pandemic for poor countries that cannot afford it, but that will impact the rest of the world.
So the World Bank is important, but it needs to be run effectively. This brings us to the current scandal that is going on with the “Doing Business” report. This was a major report that would be issued by the World Bank every year. This report would rank all the major countries in the world on how friendly they were to doing business in their country. You have to understand the importance of this report. Major financial decisions were made on a countries doing business ranking about where investors wanted to put their money. For instance, you do not want to invest your money in a country with a corrupt court system, where if someone steals your money, you may not be able to get it back. These rankings matter, which is why you want an independent global institution gathering the data and issuing this report.
It has come to light that the data in the report has been manipulated for several years, specifically in the 2018 and 2020 reports. These allegations center around IMF Managing Director Kristalina Georgieva. Here is the investigation report issued by WilmerHale. One of the stories in the report has to do with China’s ranking. The staff was preparing to issue the report giving China a business ranking of 78. The report explains that Georgieva pressured staff to increase the ranking to 85 (an increase of 7 slots). This was happening at the same time that the bank was negotiating with China to increase their capital funding for the bank.
So China gives money to the bank and suddenly their ranking increases. The report is very clear that there is not wrongdoing on China’s part. This was wrongdoing with the bank leadership, where it seems like there was minimal internal controls to keep investing activities from impacting the results of the report. In fact, there was bullying and manipulation from the leadership to change the data. What is so bad about this, is these reports are a zero-sum game. If someone does well in the report, that means another country loses. China wins big with an increased rating, but that means seven other countries received lower ratings than they should have. That means that those other countries lost out in financing, credit scores, investment opportunities, and businesses decided to operate in China instead of the other countries, when China did not deserve it.
There is a similar situation that happened with Saudi Arabia, and another situation with Azerbaijan. It is clear this is a repeating pattern at the bank. The report talks about bullying and intimidation. Bank employees were afraid to speak up for fear of retaliation.
This all started with a famous American economist named Paul Romer. He was a professor at University of Rochester, Stanford, Berkeley, University of Chicago, and currently New York University. Paul Romer was the chief economist at the World Bank in 2018. Also in 2018, he won the Nobel Prize in Economics. He gave an interview to the Wall Street Journal on Jan 12, 2018 as a whistleblower, revealing that the rankings in the “Doing Business” report related to Chile were flawed and politically motivated. Later that month, he resigned from the World Bank, and the Financial Times reported about an email Romer had sent during his employment to his fellow economists at the World Bank where he said, “I’ve never in my professional life encountered professional economists who say so many things that are easy to check and turn out not to be true.” His whistleblowing started this whole investigation, and it turns out what he was saying was correct this whole time.
So what has happened since then. To be fair, Georgieva has claimed that the accusations against her are false and the report from WilmerHale is incorrect. But we know there was some wrongdoing, because the bank themselves cancelled the Doing Business report last year after the global outrage.
Georgieva hired a lawyer and went to the board to ask for the opportunity to plead her case. The board denied her. However, after further investigation, the board determined that no wrongdoing had been done. The board has expressed its full confidence in the ongoing leadership of Georgieva at the World Bank.
Why is this so important now? Just this week, the World Bank announced a new “rebranded” report called “Business Enabling Environment.” So instead of “Doing Business” it is now “Business Enabling Environment.” It is the same report, put together by the same economists, and the same leadership. The World Bank board released a statement explaining they have improved standards, but from what I can see, it does not seem like anything has changed.
Let me share with you my opinion. This is what corruption looks like, and it is unacceptable. This is rich and powerful people, cooking the books, so they continue getting rich. It appears that member nations, like the US, tax their citizens. Then they give the tax dollars to the World Bank. The World Bank uses that money however they want, and then falsify the economic report to support their actions. People are rightly outraged. Their tax dollars should be used to do the right thing, backed by accurate data. We have whistleblowers that have come forward, but they are not protected. The only people who have been protected are the corrupt leaders. This is why whistleblower protection is so important.
In my opinion, Georgieva has failed as a leader. Banking is all about confidence. No one has confidence in this report. And if they are doing shady activities with this report, what are they doing with the bank’s money?
There are things we can do here. Janet Yellen is the US Secretary of the Treasury as well as holding the title of the US Governor for the World Bank. I am a big Janet Yellen fan. I think she is brilliant. I still am angry that Donald Trump fired her as the head of the Federal Reserve. But I have to call her out here. She has a say about what goes on at the World Bank. In my opinion, Janet Yellen needs to do a whole lot more yelling. Instead, she calls up Georgieva told her these were serious issues and we need to do better. She did not even give Georgieva a slap on the wrist. Nothing. Janet supported the board keeping Georgieva as the Managing Director. It is disgusting. At the very least, the World Bank needs to not be writing this report. They lost their credibility. They should pay to have an outside entity write the “Doing Business” report. What I would suggest is there are some great globally focused business schools around the world. I think you could do a collaboration with a few key business schools to write this report. But the World Bank does not want to do that, because they want to control the data.
Here is what Janet Yellen should do. The US is the World Bank’s largest shareholder and they are the only country that retains veto power over changes in the bank’s structure, according to the bank’s website. The US can actually veto what is going on here with Georgieva. Janet Yellen should say the US will stop all funding of the World Bank until Georgieva is fired, and the bank institutes adequate reforms. As I started out by saying, the World Bank is an important institution and we cannot stand by and do nothing when we have evidence of corruption at the World Bank.
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Neither Zach De Gregorio or Wolves and Finance shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.