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World Bank Scandal Is a Challenge for Biden

And an opportunity to protect the integrity of the IMF and World Bank as institutions built by and for Western liberal democracies.
September 28, 2021
World Bank Scandal Is a Challenge for Biden
International Monetary Fund Managing Director Kristalina Georgieva listens during an event at the World Bank February 10, 2020, in Washington, DC. (Photo by Brendan Smialowski / AFP) (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)

Unless the disgraced managing director of the International Monetary Fund (IMF), Kristalina Georgieva, resigns swiftly, the Biden administration is about to face a clear-cut test of its credibility. Is it willing to use diplomatic tools to hold rogue actors in international institutions to account? If it allows Georgieva to stay in her current job, much of the rhetoric of America being “back”—already badly damaged by the botched Afghanistan withdrawal—will ring hollow for the rest of Joe Biden’s presidency.

Georgieva is a well-known Bulgarian economist who spent much of her career in top posts of key international organizations. Before she took the top job at the IMF in 2019, she was for two years the CEO of the World Bank. During her tenure there, according to an internal investigation conducted by the Bank, she is alleged to have pressured, together with the Bank’s then-president Jim Yong Kim, the authors of Bank’s annual Doing Business report into awarding higher scores to China than it would otherwise have deserved. Simultaneously, the Bank’s leadership was seeking China’s consent for a capital increase for the Bank, approved in April 2018.

The meddling with the report’s methodology didn’t stop there; apparently, the ranking of Saudi Arabia and the UAE were also tinkered with. These findings have led the Bank to scrap Doing Business, its flagship publication, which served since 2003 as an impetus for pro-market reforms around the world.

The scandal tarnishes the reputations of both the Bank and the IMF, two institutions that—unlike most multilateral organizations, especially those under the U.N.’s umbrella—enjoyed some respect for their competence and integrity.

With its withdrawal from Afghanistan, the Biden administration is de-emphasizing the use of U.S. military might in its global leadership role in favor of more robust diplomatic efforts addressing global challenges. Whether or not that dichotomy is a real one, and whether the choice is up to America to make, is a subject that reasonable people can disagree on. President Biden, for his part, is seeking to open “a new era of relentless diplomacy; of using the power of our development aid to invest in new ways of lifting people up around the world; of renewing and defending democracy,” as he put it in his speech at the United Nations General Assembly meeting last week.

Both the defense of democracies’ interests and the effectiveness of multilateral institutions in promoting economic development around the world are at stake in the aftermath of the controversy over the Doing Business report. In recent years, China—the West’s premier adversary—has hijacked or undermined the Human Rights Council, UNESCO, and the International Criminal Court. Now it seems that China also used the world’s foremost development agency and lender as a pawn—with the assistance of the Bank’s craven leadership.

It is worth noting that, if the two Bretton Woods institutions have hitherto appeared more trustworthy and reliable than most multilateral organizations, it is largely because Western liberal democracies have been able to call the shots—unlike under the one-country-one-vote system of decision-making prevalent in U.N. agencies.

For the last few years, the two agencies have found themselves at the frontline of efforts to align the voting power with the shifting center of gravity in the world’s economy. The IMF’s quota system was reformed in 2016, while the Bank’s capital increase in 2018 coincided with a greater voice being given to emerging economies, including China—under the watch of the Trump administration.

The untimely demise of the Doing Business report reveals the foolishness of those changes. It is a good thing that the United States continues to hold a disproportionate share of the vote (over 16 percent in the IMF’s executive board, for example) and that, together with EU countries and other close partners, such as the United Kingdom, Americans maintain control of both institutions. The Chinese regime is already involved in building structures parallel to ours, through its Belt and Road Initiative and the Asian Investment and Infrastructure Bank. To accommodate it further in multilateral financial institutions built by and for Western liberal democracies makes no sense whatsoever.

It is time to use the power that America wields at both the IMF and the World Bank to deliver on Biden’s promise “to uphold the longstanding rules and norms that have formed the guardrails of international engagement for decades that have been essential to the development of nations around the world.” Holding bad actors accountable, and keeping the West firmly in control of the two Bretton Woods institutions, is a necessary first step.

Dalibor Rohac

Dalibor Rohac is a research fellow at the American Enterprise Institute in Washington, D.C. Follow him on Twitter @DaliborRohac.