Chile Weighs Impact of Controversy Over World Bank Ranking

(Bloomberg) -- President Michelle Bachelet’s administration is trying to weigh the political and economic costs from alleged manipulation at the World Bank that could have unfairly lowered Chile’s position in a global business ranking.

The bank’s chief economist Paul Romer told the Wall Street Journal Friday that Chile’s recent slide in the “Doing Business” index was almost entirely due to methodological changes that could have been politically motivated, and not by deterioration in the country’s business environment. Romer released figures Monday that showed what would have happened to Chile’s ranking without the changes.

“The Doing Business report is equivalent in financial circles to a risk rating,” Finance Minister Nicolas Eyzaguirre told Radio Tele13 Monday. “The index is complex and is characterized by a certain subjectivity. The way in which modifications were made is surprising.”

Question is, did it have an impact on Chile’s economy and politics? Gross domestic product has suffered the slowest four years of growth since the early 1980s with investment declining in each of those years. Business groups and the opposition blamed the slowdown on Bachelet’s decision to raise taxes and empower labor unions, while the government said it was due to a slump in commodity prices. The “Doing Business” report implied some of the blame at least lay at Bachelet’s door.

The ruling coalition subsequently lost December’s presidential election to billionaire Sebastian Pinera, who campaigned on a pro-business agenda and promises to double economic growth. He takes office on March 11.

“There is no doubt the report wasn’t favorable to investment and neither is there any doubt that in the election it wasn’t favorable” to the ruling coalition’s candidate, Eyzaguirre said in a statement Monday. “But the dimensions, I wouldn’t be able to say.”

The Vatican

Felipe Larrain, Pinera’s former finance minister, is a member of the advisory board to the “Doing Business’ report. Larrain has said that any “abnormality” in the figures would be very serious and called on the bank to clarify the situation.

President Bachelet demanded an investigation by the World Bank into Romer’s allegations, a probe the multilateral lender agreed to carry out.

“In light of the concerns expressed by World Bank Chief Economist Paul Romer in the media and our commitment to integrity and transparency, we will conduct an external review of Chile’s indicators in the Doing Business report," the bank said in a statement late Saturday.

While Chile’s rank in the World Economic Forum’s global competitiveness report has hovered between 33 and 35 in the past five years, its “Doing Business” position has been more volatile. Chile ranked as high as 34 under Pinera’s administration from 2010 to 2014, but as low as 57 during Bachelet’s two terms in office -- from 2006 to 2010, and from 2014 to now.

Below Colombia

During Bachelet’s latest administration, Chile’s ranking in the report has fallen below that of Colombia and Mexico, two countries marked by corruption and violence.

By contrast, Colombia is ranked 66 in the Global Competitiveness Index, Mexico is number 51 and Chile is 33. Still, it is unlikely that the “Doing Business” report had an impact on investment, said Jorge Selaive, chief Chile economist at BBVA in Santiago.

“I find it hard to believe that any medium to long-term investor considers the ‘Doing Business’ report among the principal variables they consider before investing in a country,” Selaive said in an emailed response to questions.

They were comments echoed by the central bank President Mario Marcel. The “Doing Business” report is designed to improve public policies and as such, is directed at governments rather than investors, he said today.

Augusto Lopez-Claros, who was in charge of compiling the report at the World Bank, said accusations of political manipulation were “wholly without merit.” Chile’s recent rankings decline was due to other countries, including Mexico and Colombia, stepping up their efforts, as well as fully-justified and transparent methodological changes, Lopez-Claros said in an emailed note.

The report ranks nations on data points that include how easy it is to get construction permits or register property.

Lopez-Claros is on leave from the World Bank this year while serving as a senior fellow at the Edmund Walsh School of Foreign Service at Georgetown University in Washington.

--With assistance from Oscar Medina and Andrew Rosati

To contact the reporter on this story: Philip Sanders in Santiago at psanders@bloomberg.net.

To contact the editors responsible for this story: Giulia Camillo at gcamillo@bloomberg.net, Vivianne Rodrigues at vrodrigues3@bloomberg.net, Walter Brandimarte

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