- The World Bank says changes to the methodology of its “Doing Business” report may have unfairly affected some countries’ rankings.
- Political motivations of World Bank staff may have influenced the changes, and Chile may have been a target.
- The World Bank says it will revise the rankings for at least the past four years.
The World Bank’s chief economist, Paul Romer, told The Wall Street Journal on Friday that the organisation changed the methodology of its “Doing Business” rankings in ways that were unfair and misleading, and the organisation will recalculate the rankings for at least the past four years.
The “Doing Business” report ranks countries by things like the ease of opening a business, obtaining construction permits, getting credit, or paying taxes. Countries get penalised for things seen as making the business environment more complicated or onerous. The rankings are one of the World Bank’s most prominent initiatives.
Romers’ promised revision could affect the rankings of a number of countries, but Chile may see the most significant adjustment. Romer told The Journal that changes to the South American country’s rank stemmed from methodological adjustments rather than a deterioration in the country’s business environment and could have been affected by political motivations among the World Bank’s staff.
Since 2006, Chile’s presidency has alternated between socialist Michelle Bachelet, who was in office from 2006 to 2010 and from 2014 and 2018, and conservative Sebastian Piñera, who was in office from 2010 to 2014 and who will start a new term this year.
Over that 12-year period, Chile’s competitiveness ranking has shifted between 25 and 57 – rising under Piñera and falling under Bachelet.
Chile is currently 55 out of 190 countries on the list, down from 34 in 2014. Its ranking declined to 41 in 2015, 48 in 2016, and 57 in 2017.
Romer said World Bank staff affected how rankings were calculated by repeatedly changing the report’s methodology and that corrections will focus on changes that penalised Chile’s ranking during Bachelet’s most recent term.
“Based on the things we were measuring before, business conditions did not get worse in Chile under the Bachelet administration,” Romer told The Journal, offering “a personal apology” to Chile and other countries affected.
He said the report’s problems were “my fault because we did not make things clear enough” and that he couldn’t defend “the integrity” of the process that led to the changes in methodology.
‘Rare to see an action this immoral’
The former director of the World Bank group responsible for the report, Augusto Lopez-Claros, defended those changes, saying they came after “extensive internal peer review” and were announced by the bank. “The whole process was undertaken in a context of transparency and openness,” he told The Journal.
Lopez-Claros said claims that methodogical changes targeted Chile were “wholly without merit” and that the country’s fall came as other countries undertook reforms. Lopez-Claros is a former professor at the University of Chile and is on leave from the World Bank this year while serving as a senior fellow at Georgetown.
In a statement, the World Bank said it treats “all countries equally in our research, and the Doing Business indicators and methodology are designed with no single country in mind but so that the overall business climate can be improved.” The statement also noted the Bank will conduct an external review in light of Romers’ concerns.
Chile is one of Latin America’s wealthiest economies. Piñera presided over booming growth from 2010 to 2014, largely driven by high prices for copper, which is Chile’s chief export.
Falling prices for the commodity led to a deceleration in growth during Bachelet’s most recent term. Piñera handily defeated Bachelet’s preferred candidate in 2017, promising to reduce red tape and increase investment.
Bachelet responded to the report on Twitter, calling it “very concerning.”
“More than the negative impact on the position of Chile, the alteration damages the credibility of an institution that must have the confidence of the international community,” Bachelet added, saying that her government would formally ask the World Bank for a complete investigation. “The ranks administered by international institutions must be trustworthy, as they impact investment and the development of countries.”
Chile’s economy minister, Jorge Rodriguez Grossi, said it was “rare to see an action this immoral.”
“We hope the correction to the index is rapid, but the damage has already been done, and it is to be hoped that statistics are never again manipulated with political objectives,” he said.
Business Insider Emails & Alerts
Site highlights each day to your inbox.