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World Bank faces change post-Wolfowitz

The political firestorm that cost World Bank president Paul Wolfowitz his job has reopened several hot-button issues over how the 60-year-old institution manages the fight against global poverty. By's John W. Schoen
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The political firestorm at the World Bank that cost President Paul Wolfowitz his job Thursday was sparked by a promotion he arranged for his girlfriend. But some of the real issues behind his ouster have been festering since his first day on the job in 2005, when he embarked on a mission to change the way the 60-year-old institution manages its task of fighting global poverty.

That means there’s a lot more at stake than the political infighting between Wolfowitz, the White House’s hand-picked proxy, and the powerful European members of the bank's board who pushed him out, according to Colin Bradford, a senior fellow at the Brookings Institution.

“What’s at stake is that the bank is a caldron, a forum in which countries around the world in their differing capacities and weights sort out where we’re going in the attack on global poverty and on issues related to it, such as global financial flows, debt, trade, health, environmental issues that impact on poverty and the like,” said Bradford, an economist and former World Bank staffer.

Established at the end of World War II as part of a restructuring of the world financial system known as Bretton Woods, the World Bank and its sister International Monetary Fund were tasked with rebuilding economies ravaged by war. The major parties to the agreement — the Allies that won the war — decided that the World Bank president would be chosen by the United States and the leader of the IMF would be appointed by major European powers, a policy that has persisted since.

As the bank's biggest donor and largest shareholder with a 17 percent stake, the United States also maintains effective control over broad policy issues with veto power over major bank decisions. Critics of the World Bank say that makes the bank too reliant on U.S. foreign policy.

The backlash against Wolfowitz has reopened the debate over whether the agency should have greater independence. At the very least, it has increased pressure on the White House to cede some of the authority for naming the next bank president to seek a wider consensus among member countries.

“You’re seeing a kind of clash of cultures between a highly centralized, determined, single-minded and authoritarian style of management in an institution which is multilateral and therefore has a diverse set of interests and ideas and perspectives that is embodied by the nature of that fact that 185 countries are members of the bank,” said Bradford.

In his two years in office, Wolfowitz, who was one of the Bush administration's key architects of the Iraq war, managed to ruffle feathers on several issues, according to Faiz Shakir, research director at the Center for American Progress.

“He has promoted regressive family-planning policies,” he said. “He has tried to play down the link of global warming and carbon emissions in World Bank science reports. He's tried to push a World Bank office in Baghdad, of all places, one of the most corrupt and insecure places around the globe, and he’s saying anti-corruption is his principal issue."

Wolfowitz’s supporters say his campaign against corruption in developing countries is critical to the success of the bank’s mission of fighting poverty.

There’s no disagreement that money intended to help the poor can’t have an impact if it lands in the bank accounts of corrupt political leaders. But Wolfowitz took a harder stand than his predecessors — going so far as to cut off funds to countries that he felt didn’t attack corruption aggressively enough.

That cutoff antagonized some World Bank officials and fed the political backlash against him, according to Jack Burkman, a Republican political consultant in Washington.

“Most of the money has been embezzled by warlords and ended up in the hands of people with munitions,” he said. “These bureaucrats in the bank, the ones that don't remain bureaucrats for their lifetime, a lot of them go out and become consultants. They live off this fat and corruption. Wolfowitz (was) threatening their little fiefdoms.”

The debate over how to handle corruption among recipients of World Bank grants and loans is not new. In 1996, then-World Bank President James Wolfensohn took up the issue, warning of the “cancer of corruption” in some developing countries.

Wolfowitz's work fighting corruption has had an impact. Last month, the World Bank estimated that the extent of graft in poorer countries could approach $800 billion a year and announced a new effort to recover assets stolen by corrupt leaders.

But Wolfowitz's legacy at the bank will also be remembered for a management style that his critics say failed to generate consensus among the bank member nations — or even the 24 countries represented on the bank’s governing board.

“He’s believed he's above the institutional standards and rules,” said Shakir. “And he hasn't felt that he needs to work with allies around the World Bank and around the globe. He feels like he can do whatever the heck he wants to do.”

That confrontational style has brought into focus the longstanding U.S. dominance of the bank’s leadership. In an increasingly global economy, Wolfowitz’s unilateral approach to running the bank may force the White House to acknowledge that an arrangement worked out 60 years ago needs to be changed, said Bradford.

“The way to acknowledge it is to turn the Wolfowitz presidency on its head and have the next president of the World Bank realize that the approach needs to be one that’s fully consultative, fully multilateral and fully integrative," said Bradford, a former World Bank staffer. "And that it’s the job of the leadership of the bank to incorporate diversity into a corporate World Bank vision — and not to impose the vision of one country.”

Some have questioned of whether the World Bank is even needed anymore in a world where a global economy is providing private investment to developing countries in ways the bank’s founders never could have envisioned. In the past decade, huge inflows of private capital have sparked rapid development in countries like China, India and Brazil.

But private lenders and investors in emerging markets have a distinctly different mission — to get a return on their capital. As the gap widens in many countries between the wealthiest and poorest, the bank’s mission has never been more important, said Bradford.

Nearly half the world's 6.5 billion people get by on less than $2 a day, he said.

"And this is increasing a division that’s fraught with implications for the global environment, the global health system and global security," he said. "It’s not an easy problem, and the bank is the premier institution and the leader and has been for a decade or more.”