Penny Goldberg resigns as Chief Economist at the World Bank

When autocratic, oil-rich nations enjoy a windfall from higher crude prices, where does the money go? One place to look is Swiss bank accounts. Sure enough, an increase in oil prices is followed by a spike in deposits held by these countries in financial havens, according to a 2017 paper by Jorgen Juel Andersen of Norwegian Business School, Niels Johannesen of the University of Copenhagen and their co-authors.

When Mr Johannesen presented this result at the World Bank in 2015, the audience included Bob Rijkers, a member of the bank’s research group. The two of them joined forces with Mr Andersen to investigate if something similar happened after another kind of windfall: infusions of aid from foreign donors. Their conclusion was dispiriting. World Bank payouts to 22 aid-dependent countries during 1990-2010 were followed by a jump in their deposits in foreign financial havens. The leaks averaged about 5% of the bank’s aid to these countries.

It seems the World Bank would not publish the paper — the reasons are disputed — and Goldberg resigned her post as chief economist — again the reasons are disputed.  Here is the full story from The Economist.

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Two questions I would have about this are: One, are developing nations’ deposits in foreign financial havens actually corrupt or are they a reasonable choice to hold reserves in hard currency in safe jurisdictions? In other words, do those countries’ Swiss bank account holdings ever help cushion the blow of financial or other economic crises to those countries when they occur? Two, even assuming that the 5% is all corruption, what is the percentage of comparable domestic welfare payments that are lost to corruption and does not benefit the intended recipients? My guess would be well north of 5%.

First question: that data is proprietary. The first prong of that first question will very likely get you hurt or killed if you are an investigative journalist. Second question, two wrongs don't make a right, to paraphrase the racist T-shirt, so the 2nd ? is irrelevant.

This information is hardly surprising & we should recognize in the world of global finance that the money goes round & round, much like taking money from your left pocket & moving it into your right pocket. Perhaps a more cynical question might be how much of the funding did the World Bank demand be put into Swiss accounts that the World Bank could ultimately control???
'Follow the money' for the insights but do so at your own risk...…

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Along a similar line of thinking - even assuming that corruption is siphoning off 5% of world bank funds, it isn't safe to assume that these funds are not a net benefit to the recipient country.

What percentage of college loans are being used on beer and fast food? if the number is greater than zero is that justification for killing all student loans?

The beer and fast food is still providing utility for the borrower, that's what the funds are intended for, college expenses. Foreign aid is meant to benefit the people of the recipient nation, not to pad the Swiss accounts of the local warlords.

Your analogy would be more like if the college deans siphoned off 5% of all college loans for their own Swiss accounts.

I'm unpersuaded - if one of the costs of helping the people of the recipient nation is to allow a despot to skim a little off the top it is still achieving it's purpose.

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I'm shocked, shocked, to hear that third world dictators are stealing foreign aid and putting it in Swiss bank accounts.

Foreign Aid: "Taking money from poor people in rich countries, and sending it to rich people in poor countries."

Happens everyday... 'Socialize the costs, privatize the profits'... been happening since Andrew Jackson.....

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It's such a shame; they'll never have a more fortuitously named applicants.

+1, she needs to have a role in a James Bond film

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I'd be interested in seeing if non-legal extractions from the population decreased during windfalls from oil or aid. Similar to how the populace can still benefit when food aid meant for famine relief is given to the army instead because armed soldiers stop pointing guns at them and stealing their food.

That's a good one, good way to test the hypothesis that aid does good, even if it aids corruption (no pun intended). In statistics your proposed test is known as instrumental variables estimation. See the "example" in the Wikipedia entry: https://en.wikipedia.org/wiki/Instrumental_variables_estimation

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The World Bank sure sounds extraordinarily dysfunctional.

Was she booted for lying for failing to lie? Give me the Cliff Note version.

She quit because the paper showing the corruption, written by her group, was blocked by her superiors.

Who are her superiors? On paper and in reality?

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The World Bank has been extraordinarily corrupt for a very long time. Now, was Miss Penny too corrupt even for them, or not corrupt enough? That is the question, if you care.

Pennywise, pound foolish?

Bonus trivia: https://en.wikipedia.org/wiki/Miss_Moneypenny ("In The Last Resort: A Memoir of Zimbabwe (2009), Douglas Rogers dedicated chapter 11 (titled "Miss Moneypenny") to his father Ian's black market currency dealer in Mutare")

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I'm shocked that the World Bank could allow such behaviour. This would never happen under a US administration....opps

The President of the World Bank Group is the head of World Bank Group. The president is responsible for chairing the meetings of the Boards of Directors and for overall management of the World Bank Group. Traditionally, the World Bank Group President has always been an American citizen nominated by the United States, the largest shareholder in the World Bank Group.

Bonus trivia - a friend who was an accountant at the World Bank had the fun task of doing audit on aid to Afghanistan mid 2000s. He knew the US had lost the cause way before military and political leadership, as well as the media and public. He got to "follow the money" and quickly learned that every level (political and military ) just wanted to know that the aid had been delivered. Don't ask what the outputs where as the dam, hospital, school, road, factory would be tomorrow, tomorrow. But the reports would be filed that aid was delivered, process followed and forms all signed.

But no one cared if nothing happened, so long as the military reported they are winning hearts and minds in line with KPI's, media got a sound bite and photo of either smiling kids or blown up bodies the machine worked for everyone clipping the ticket towards their next promotion.

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The are are not only the foreign politicians that steal. The other two components are the NGOs or companies involved in the projects and the politicians of the donor country.

NGOs excess profits tend to appear as increases in the salary or “special bonuses” to employees (the economics and politics of NGOs are remarkably similar to cooperatives). In the case of companies (usually construction companies) they are profits. In many cases these companies are specialized in this segment, so there are not even bumps in profit different from usual.

Donor country politicians distribute a part to their party and friends coffers for political campaigning, and pocket the rest, although they do not use Swiss accounts, the national economy is big enough to hide the loot.

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A 5% leakage is far less than what I would have guessed. I'd call it a reasonable commission. If one considers the "commissions" Friends of Trump collect, 5% is a bargain. Or consider the commissions the gate keepers in financial markets collect. Money and soft corruption are birds of a feather.

I note you said "Trump," is it not more accurate to state Obama or Bush? Given the tendency for Swamp creatures corruption?

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is that the tip that is easily measured?
and corruption manifests in different ways through out the food chain.

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I listened to this weeks episode of the podcast where if I’m not mistaken, the guest made mention of the World Bank Doing Business team. He thought they did great work. It all sounded so affirmative in that Queens English accent. Then I remembered the EconTalk episode with Paul Romer when he discussed why he left the World Bank. He singled out the doing business team as being completely completely bogus.

Tim Harford on the world bank:

“But I also worked on the outskirts of the Doing Business Team who were doing, I think, fantastic work, quantifying regulations around the world. That was just much more engaging because you really felt people were measuring something that mattered and producing genuinely new information for the world to digest. That was an interesting thing to be. I don’t want to claim any credit for it, but I was on the fringes of that team. And I found it fascinating to see them operating.”

Paul Romer on the World Bank:

“I was worried about the possibility that some kind of ideological, political views had distorted the numbers that were reported from, in the Doing Business Report. And, in particular, I was very worried about a pattern in Chile, where, again, it could have been just random chance. But the Doing Business ranking just moved down, you know, every year, when the party of the Center Left was in control, and moved up when the party of the Center Right was in control.“

He continues:

“ ...what turns out is if you hold the measures of what's going on in Chile constant, um, all of those changes, virtually all of those go away. So, it's like saying 'Okay, Chileans are weaker this year because they can only do 20 pushups.' And you say, 'Wait a minute. Last year, Chileans are [?] because it's chin-ups instead of pushups.' And so you're like, 'Oh, well, we're using chin-ups instead of pushups this year.' And then it's, you know, like lunges the year after. They kept changing the measures that went into this doing business ranking. And if you just hold constant these measures, most of these changes went away”

Romer and Goldberg know what’s up. It’s hard to listen to an entire podcast and deeply enjoy it when at the very end, they guest says something that runs counter to the experience of other people. The doing business index has been obviously discredited. I liked Tim Harford, but he’s kind of another clueless academic with a bunch of letter behind his name. I wish he could talk to Romer and Goldberg.

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The exotic "pandemic bond" initiative has transferred $115 million of funds intended for the poorest countries to investors and reinsurers in high-income countries. In plain sight. See:
An inside look at the debate around #pandemic bonds, which have $425 million hinging on how deadly the #coronavirus ends up being
https://twitter.com/businessinsider/status/1228305406130298880?s=20

and Designed to Fail, https://www.nature.com/articles/d41586-019-02415-9

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The windfall oil profits wreaked havoc in global capital markets and were the underlying cause of the Housing Bubble/Financial Meltdown. So the dynamics are very similar to what took place in Texas in the 1980s which resulted in the S&L Crisis. So the capital markets became global over that time and that is why the Housing Bubble was a global phenomenon.

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