Probe faults leaders including Kristalina Georgieva, now IMF managing director, who disagrees with findings
The World Bank canceled a prominent report rating the business environment of the world’s countries after an investigation concluded that senior bank management pressured staff to alter data affecting the ranking of China and other nations.
The leaders implicated include then World Bank Chief Executive Kristalina Georgieva, now managing director of the International Monetary Fund, and then World Bank President Jim Yong Kim.
The episode is a reputational hit for Ms. Georgieva, who disagreed with the investigators’ conclusions. As leader of the IMF, the lender of last resort to struggling countries around the world, she is in part responsible for managing political pressure from nations seeking to advance their own interests. It was also the latest example of the Chinese government seeking myriad ways to burnish its global standing.
The Doing Business report has been the subject of an external probe into the integrity of the report’s data. On Thursday, the bank released the results of that investigation, which concluded that senior bank leaders including Ms. Georgieva were involved in pressuring economists to improve China’s 2018 ranking. At the time, she and others were attempting to persuade China to support a boost in the bank’s funding.
The Chinese Embassy in Washington didn’t respond to a request for comment. Mr. Kim didn’t respond to an email seeking comment.
Ms. Georgieva said: “I disagree fundamentally with the findings and interpretations of the Investigation of Data Irregularities as it relates to my role in the World Bank’s Doing Business report of 2018.”
The Doing Business report has been a flagship publication for the World Bank, which conducts economic research alongside its primary work of providing financing in poor countries. The report’s annual release drew media coverage around the world, and countries jockeyed to improve their ranking by making policy changes.
For years, the report was viewed as a success because it motivated governments to improve the ability of businesses to obtain licenses, connect to electricity or easily pay their taxes—all factors considered in the rankings.
Chinese officials in 2017 and 2018 were eager to see their ranking improve, and so Mr. Kim and Ms. Georgieva and their staff held a series of meetings to discuss ways that the report’s methodology could be altered to improve China’s rankings, according to the investigative report by the law firm WilmerHale.
The World Bank was in the middle of difficult international negotiations to receive a $13 billion capital increase. Despite being the world’s second largest economy, China is the No. 3 shareholder at the World Bank, following the U.S. and Japan, and Beijing was eager to see its power increased as part of a deal for more funding.
In October 2017, Ms. Georgieva convened a meeting of the World Bank’s country director for China, as well as the staff economists that compile Doing Business. She criticized “mismanaging the Bank’s relationship with China and failing to appreciate the importance of the Doing Business report to the country,” according to the investigative report’s summary of the meeting.
An unidentified lead staffer working on Doing Business suggested they could raise China’s ratings by dropping data from either Beijing or Shanghai, since China’s ranking combined data from both cities. Ms. Georgieva asked for a simulation of that strategy, the investigative report said.
The staff later determined the change wouldn’t have the desired effect, investigators said. Other countries’ ratings would benefit as well, reducing the improvement in China’s rating.
Ultimately, the team identified three data points that could be altered to raise China’s score, the investigative report said. For example, China had passed a law related to secured transactions, such as when someone makes a loan with collateral. The World Bank staff determined it could give China a significant improvement to its score for legal rights, citing the law as the reason.
World Bank employees knew the changes were inappropriate but “a majority of the Doing Business employees with whom we spoke expressed a fear of retaliation,” the investigative report said.
Although the data-gathering process for the 2018 report was finished, the World Bank’s economists reopened the data tables and altered China’s data, the investigative report said. Instead of ranking 85th among the world’s countries, China climbed to 78th due to the alterations. A series of smaller changes detailed in the investigative report also affected the rankings of Azerbaijan, the United Arab Emirates and Saudi Arabia.
When Ms. Georgieva was informed of the changes, investigators said, she thanked one of the senior Doing Business leaders for doing his “bit for multilateralism.”
In April of 2018, the U.S., China and other member countries finalized the deal to boost the World Bank’s funding. It isn’t known how much the ranking improvement factored into China’s support. The country had long signaled support for the World Bank’s capital increase.
The Treasury Department, which oversees U.S. participation in the IMF and World Bank, expressed its concern with the investigative report’s findings. The IMF and World Bank are collectively owned by member nations and for both institutions, the U.S. Treasury has the largest ownership stake.
“These are serious findings and Treasury is analyzing the report,” said Treasury spokeswoman Alexandra LaManna. “Our primary responsibility is to uphold the integrity of international financial institutions.”
Justin Sandefur, a senior fellow at the Center for Global Development think tank who has long criticized the Doing Business report, said: “You had enormous discretion by World Bank staff combined with super high stakes for World Bank client countries getting named and shamed in the media, and it was just a recipe for political interference.”
Concerns about Doing Business first became public in 2018 when the World Bank’s chief economist, Paul Romer, said in an interview with The Wall Street Journal that he was concerned the report was susceptible to campaigns to alter its data for political purposes. Mr. Romer said that he lacked confidence in a series of methodological changes to the report that had improved the ranking of Chile under conservative governments, but hurt its ranking under socialist governments.
The World Bank denied that the report had been manipulated, and Mr. Romer resigned shortly afterward. He said at the time that he believed the World Bank’s role as an honest broker of economic reports such as Doing Business was in fundamental conflict with its diplomatic mission.
Following the discovery of the additional data irregularities in 2020, the bank halted publication of the report—initially just temporarily—and commissioned the external investigation.
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
Jared Kushner’s Middle East Development Project
His conference in Bahrain hears of big dream plans divorced from reality.
The slick promotional publication, titled “Peace to Prosperity,” described a $50 billion investment surge in the Palestinian economy over the next decade, like a fantastical New York real estate promotion. Palestinians certainly could use the investment and jobs in their economically depressed communities, where unemployment last year was 31 percent.
The publication touted what was supposed to be an economic foundation for peace between Israel and the Palestinians, presented at a conference in Bahrain this week by Jared Kushner, presidential son-in-law, senior adviser and, formerly, New York real estate developer.
Mr. Kushner invited participants to “imagine a new reality in the Middle East.”
But except for its patronizing tone, there’s little new about the plan, which relies heavily on the construction of much-needed infrastructure projects that are retreads of proposals the World Bank, the United States and others made in previous failed peace efforts.
The most ambitious undertaking would be a $5 billion transportation corridor from the West Bank to Gaza that could link the two Palestinian territories with a major road and possibly a modern rail line. To facilitate the flow of Palestinian people and goods with Israel, Egypt, Jordan and other countries in the region, facilities at key border crossings would be upgraded, new cargo terminals would be built, old ones would be refurbished and new security technology would be installed.
Although it deals only in generalities, the plan also envisions investing in upgrades to Palestinian electric grids, the Gaza Power Plant and renewable energy facilities. In an effort to double the water supply in five years, new desalinization and wastewater treatment facilities, wells and distribution networks would be built. Financial incentives would encourage private Palestinian businesses to expand the limited existing digital capabilities by developing high-speed telecommunications services.
Other proposals focus on expanding educational opportunities, jobs, housing, tourism and the rule of law.
While tantalizing, the plan as it stands is, to be gentle, unrealistic.
Israel controls the economic life of the Palestinian territories, meaning none of the proposals are possible without its concurrence. Yet the plan makes no demands on Israel and its prime minister, Benjamin Netanyahu. Gulf states, along with European nations and private investors, are expected to help finance the plan, but there have been no actual commitments, and the idea that the Arabs would bankroll a peace plan that sidesteps a Palestinian state is unlikely.
Making the whole initiative even more surreal, it arrives after the administration in which Mr. Kushner serves sharply cut funds for programs that support Palestinian schools and health care.
The fact that officials of the Israeli and the Palestinian governments, whose futures are most at stake, were absent from the two-day conference in Bahrain, and that many Arab and European countries sent only lower-level representatives, underscores the broad international discomfort with Mr. Kushner’s economic proposals and the promised plan for resolving Israel-Palestinian political issues that is supposed to follow it.
Team Trump is betting that dangling lucrative investments will cause Palestinians to abandon their aspirations for an independent state, a goal the United States supported as part of a negotiated peace since 2002, until President Trump voiced a more fluid view. If it were that easy it would have happened years ago.
Palestinian leaders, who halted contact with Washington months ago, rejected Mr. Kushner’s economic blueprint out of hand. Saudi Arabia and the United Arab Emirates, allies with Israel against Iran, were supportive but made clear that the plan needed to be combined with a political solution.
The one truly enthusiastic cadre appeared to be billionaire investors who, seemingly for the first time, were seeing economic potential in a long-ignored part of the world. Many of them expressed such eagerness about eventually underwriting projects promoted by the plan that Treasury Secretary Steven Mnuchin said, “It’s going to be like a hot I.P.O.”
Mr. Kushner is right when he says the “old way hasn’t really worked.” However, by presenting a plan that ignores Palestinians’ aspirations for statehood and their demands for ending Israeli occupation of Palestinian territories, he is making success even less likely. “If we are going to fail,” he has said, “we don’t want to fail doing it the same way it’s been done in the past.”
What happens next is anybody’s guess. Secretary of State Mike Pompeo admitted in a recent closed-door meeting with Jewish leaders that the plan may be “unexecutable.” But if Mr. Kushner can mobilize powerful investors and international businesses as cheerleaders for Mideast peace, he could make a real contribution.
Confessions Of An Economic Hitman
What is an economic hitman? Cenk Uygur and John Perkins, hosts of The Conversation, break it down.
Reagan’s Supply-Side Warriors Blaze a Comeback Under Trump
Like perms, Members Only jackets and Duran Duran, their economic theories were big in the go-go 1980s. Now they’re back.
Those decades of free-market machinations are now paying off, as a quintet of Ronald Reagan administration alumni — Kudlow, Laffer, Forbes, Moore and David Malpass—united by undying affection for each other and for laissez-faire economics, have the run of Washington once more. Members of the tight-knit group have shaped Trump’s signature tax cut, helped install each other in posts with vast influence over the global economy, and are working to channel Trump’s mercantilist instincts into pro-trade policies. Blasted by their critics as charlatans and lauded by their acolytes as tireless champions of prosperity, there’s no denying that the quintet has had an enduring impact on decades of economic policy.
Most recently, in late March, and partly at Kudlow’s urging, Trump announced his intention to nominate Moore to one of two open seats on the Federal Reserve Board of Governors, the body that sets the tempo of the global financial system.
The announcement prompted protests from economists across the ideological spectrum—George W. Bush’s top economist, Harvard’s Gregory Mankiw, said Moore lacked the “intellectual gravitas” for the job—who warned that appointing Moore, a think-tanker with no Ph.D., would politicize the Fed. Soon, it emerged that Moore had made a mistake on a 2014 tax return that led the IRS to place a disputed $75,000 lien against him, and CNN dug up scathing comments Moore had made about Trump during the presidential primary.
Whether Moore can survive the scrutiny and pass muster with the Senate will be a test of the supply-siders’ renewed cachet. They believe they can pull it off.
“I understand there are imperfections,” Kudlow told POLITICO. “I think it can be worked out.”
Moore described some of his recent conversations with Trump, which often turn to Fed Chairman Jerome Powell.
“I think his criticism of Powell is excessive and could be counterproductive,” Moore said, because it could actually provoke Powell to prove his independence by defying Trump’s wishes. Generally speaking, Trump wants Powell to keep interest rates low to decrease the chances of any economic slump before the president faces voters again next November.
Moore also recounted how he and Laffer, who began advising Trump in 2016, helped place Kudlow in his current posting.
Roughly a year into Trump’s term, as Trump’s first NEC director, Gary Cohn, prepared to depart the post, the duo sprang into action. Moore said that during this period, whenever he and Laffer engaged in their semiregular consultations with Trump, they would have some version of the following exchange:
“You know, Mr. President, you’re missing one thing,” Laffer or Moore would say.
“What is that?” Trump would ask.
“Larry Kudlow,” Laffer or Moore would tell him.
“We just drilled the message over and over,” Moore recalled. “‘Larry, Larry, Larry, Larry.’”
During that same period, following the 1974 midterms, Laffer first drewhis famous Laffer Curve — a representation of the idea that at a certain level of taxation, lowering taxes would theoretically spur enough growth that government revenue would actually rise—at a meeting near the White House with Wanniski, Dick Cheney, then an aide to President Gerald Ford, and Grace-Marie Arnett, another free marketeer active in Republican politics.
Reagan would go on to fully embrace supply-side theory, a shift from the party’s traditional emphasis on fiscal discipline, appointing Laffer to his Economic Policy Advisory Board.
Then as now, supply-side economics was criticized for favoring the rich and derided by critics as unrealistic “Voodoo Economics.” The critics got an early boost from a 1981 Atlantic cover story in which Reagan’s budget director, David Stockman, aired his doubts that this novel theory was working in practice.
The piece ruined Stockman’s standing with Reagan—Laffer calls him “the traitor of all traitors”—but Stockman’s young aide, Kudlow, now 71, remained a loyal supply-sider and struck up a relationship with Laffer.
Reagan would go on to appoint Forbes as the head of the Board of International Broadcasting, which oversaw Radio Liberty and Radio Free Europe, and Moore worked as the research director for Reagan’s privatization commission. Malpass, meanwhile, worked in Reagan’s Treasury department. Representatives for Forbes and Malpass said they were not available for interviews.
In the 1988 presidential primary, another supply-sider, the late New York congressman Jack Kemp, lost out to George H.W. Bush, curtailing the crew’s influence within the party.
But they stuck together. Moore, now 59, first became close with Laffer and Kudlow in 1991, after he recruited them to participate in an event celebrating the 10-year anniversary of Reagan’s first tax cuts for the libertarian Cato Institute.
In 1993, Kudlow and Forbes teamed up to craft a tax cut plan for New Jersey gubernatorial candidate Christine Todd Whitman, who went on to unseat incumbent Democrat James Florio.
Meanwhile, Kudlow hired Malpass to work for him at Bear Stearns, where he had been flying high as the investment bank’s chief economist.
The next year, Kudlow crashed to earth—he left the bank and entered rehab for alcohol and cocaine addiction. Laffer stuck by Kudlow, hiring the investment banker to work for his consulting firm in California when he emerged.
In 1996, Forbes, backed by Moore, entered the Republican primary and lost out to Bob Dole, but the group takes credit for getting Kemp picked for the bottom half of that year’s ticket, which lost to incumbent Bill Clinton.
And they have not stopped partying since. Members of the group have continued to actively socialize with each other over the decades, with some spending New Year’s eves together. At one birthday party for Laffer in New York, they presented the aging economist with a signed poster of the Jedi master Yoda. “I’m short, a little bit fat. I’ve got big, green ears,” Laffer explained. “I look sort of like Yoda.”
In 2015, Forbes, Laffer, Kudlow and Moore created the Committee to Unleash Prosperity, a group intended in part to counter the emergence of the “Reformicons,” a rival gang of Republican eggheads who felt the party had gone too far in the direction of laissez-faire policies favoring the rich.
Among the other 29 committee members listed in a press release were both Malpasses, Kevin Hassett, now chairman of Trump’s Council of Economic Advisers, and Andy Puzder, who was Trump’s initial pick for labor secretary until allegations of domestic abuse unearthed by POLITICO derailed his nomination.
The group sought, with considerable success, to vet Republican presidential candidates for their supply-side credentials and to influence their platforms, holding large private dinners at Manhattan venues such as the Four Seasons and the 21 Club, so that committee members and other notable invitees—like Rudy Giuliani and Roger Ailes—could feel out the candidates.
Before meeting with the larger group, candidates would huddle with the committee’s founders to receive economic tutorials. Or in the case of Ohio Governor John Kasich, to give one. “We were all sitting there, and he would talk for an hour,” Moore recalled. “We’re like, ‘No, we’re supposed to be talking to you,’ and he’s talking to us.” Moore called the episode “Classic John Kasich.”
Though the events were supposed to be off the record, journalists often attended, and an otherwise lackluster February 2015 dinner for Wisconsin Governor Scott Walker made headlines when Giuliani barged in, proclaimed he did not believe that President Barack Obama “loves America,” and insisted a POLITICO reporter could print the quote.