Daily Management Review

The World Bank to revise Doing Business for 4 years


Chief Economist of the World Bank Paul Romer said that the organization changed the methodology for compiling the Doing Business rating, as the methods used before provided incorrect information. The organization is going to review the ratings over the past four years.

Tomás Fano via flickr
Tomás Fano via flickr
The Doing Business rating assesses countries by indicators such as ease of opening a business, obtaining construction permits, obtaining a loan or paying taxes. A country gets an unfavorable rating if its business environment is recognized as bad. This rating is one of the most famous initiatives of the World Bank.

The expected revision may affect ratings of a number of countries, but the most significant adjustment may be noted in Chile. Romer noted that changes in the South American country’s rating are due to adjustments in the rating methodology, not because of deterioration of the country's business environment and this may be affected by political motives of the World Bank staff.

President-socialist Michelle Bachelet has ruled in Chile from 2006 to 2010 and from 2014 to 2018. From 2010 to 2014, the conservative Sebastián Piñera, who will go on a new term this year, led the country.

During this 12-year period, Chile's competitiveness rating moved between 25 and 57 - it grew at Piñera and fell at Bachelet.

Now Chile ranks 55th out of 190 countries on the list, while it was on 34th place in 2014. Its rating has dropped to 41 in 2015, 48 in 2016 and 57 in 2017.

Romer stated that the World Bank staff distorted the rating by repeatedly changing the counting methodology, saying that the corrections would focus on changes in the calculations during the last term of Bachelet.

"Based on the factors that we took into account earlier, the conditions in the business environment in Chile under the administration of Bachelet did not deteriorate," Romer said, offering to bring "personal apologies" to Chile and other affected countries.

He noted that the report's problems were "my mistake, because we did not clarify many issues" and that he could not protect the "integrity" of the process that led to changes in methodology.

The former World Bank Group Director responsible for the report, Augusto Lopez-Claros, advocated for these changes, stating that they were conducted after a "vast internal expert review" and were announced by the bank. He noted that the methodological changes in the calculation of Chile's rating were "unreasonable" and that the country's rating fell because other countries carried out reforms.

The World Bank noted that it considers "all countries equally, and the indicators and methodology for calculating the Doing Business rating are developed without taking into account any particular country, but taking into account conditions for the development of the business environment as a whole" .

Chile is one of the richest countries in Latin America. Piñera’s presidency resulted in an economic boom from 2010 to 2014, largely due to the high prices for copper, which is Chile's main export commodity.

The fall in prices for this commodity led to a slowdown in the last period of Bachelet. Piñera easily bypassed candidate Bachelet in 2017, promising to reduce bureaucracy and increase investment.

Bachelet responded to the report on Twitter, calling it "quite disturbing." "Apart from the fact that this will have a negative impact on the situation of Chile, this change will damage credibility of the institution, which should have confidence of the international community. The ratings drawn up by international organizations should be credible, as they affect the investments and development of countries," Bachelet added, saying her government officially calls on the World Bank to conduct a full study.

"We hope that the correction of the index will pass quickly, but the damage has already been done, and there is a hope that the statistics will never manipulate the rating for political purposes," said Chilean Economy Minister Jorge Rodriguez Grossi.

source: bloomberg.com

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