Saturday 12 May 2007
Accused of nepotism, Paul Wolfowitz logically ought to vacate his functions very soon. The World Bank president had put good governance and the fight against corruption at the center of his action in poor countries. But by intervening in such a way that his companion be detached to the State Department and her salary greatly increased in contempt of internal regulations, he lost all credibility. The European countries are convinced of it. The American president, on the other hand, is not. Now, according to the old role-sharing understanding, the American president is the one who names the new World Bank president, while the Europeans chose the International Monetary Fund boss.
The present crisis ought to be the opportunity to modify the governance of these two institutions. In a world in which Asia is becoming the planet's premier creditor, this transatlantic monopoly is not only obsolete, but also harmful. It suggests that Westerners want, despite all opposition, to remain "masters of the globe." Above all, there is no reason for the presidents of the World Bank and the IMF to be named purely on the basis of political criteria.
Yet, at present, that is the case. Mr. Wolfowitz would never have obtained this position had his candidacy been put in competition with others. He is neither a banker nor a development specialist, the two competencies that one has a right to expect from the World Bank boss. A specialist in strategic and defense questions, he was one of George W. Bush's principal advisers after 9/11. The president wanted to reward a faithful follower, and he hesitates to drop him today so as not to suffer yet another reversal.
However, there is no lack of competent candidates. Some, like Nobel Prize-winning economist and former World Bank President Joseph Stiglitz, mention Brazilian central banker Antonio Fraga or former Turkish Finance Minister Kermal Dervis. Others suggest the names of South African Finance Minister Trevor Manuel, or even Bill Clinton or Tony Blair.
Up until now, the Europeans have been hiding behind the White House. This is wrong. At the bank's board of directors, together the Europeans have 28.9% of the votes (including 4.3% for France) versus 16.4% for the United States. Nothing prohibits the Europeans from putting the American shareholder into the minority. That would provoke a crisis, but it could be a salutary one.
Nicolas Sarkozy, who deems that his closeness to the United States allows him to deliver messages to Washington that are not always pleasant to hear, could find an opportunity in this situation to make a brilliant entrance onto the international scene by making himself simultaneously the messenger for Europe and for the oppressed.
The World Bank in Torment
By Esther Duflo
Libération
Monday 14 May 2007
Against the background of France's election campaign, the misadventures of World Bank President Paul Wolfowitz have appeared to us as an agreeable distraction, with the comic touch of the "sprinkler getting sprinkled on." But matters are in the process of getting complicated. The likely result of the episodes of recent days will be Wolfowitz's resignation or dismissal. But the stakes are about to go beyond his personal troubles, and events could lead to a major crisis for the institution.
Let's recall the events: In 2005, Paul Wolfowitz was named president of the World Bank. Controversial by virtue of his role in the war in Iraq, he owed his election to last-minute support from Europeans, who, according to rumor, accepted him in exchange for the American agreement to place Pascal Lamy at the head of the WTO. This appointment worried employees, irritated a number of developing countries and overjoyed American conservatives who saw Wolfowitz as the person who could perform an in-depth reform of the World Bank.
His arrival created a conflict of interest for his companion, Shaha Riza, who had a job at the World Bank and who, according to the institution's regulations, could not continue to work as a subordinate to her partner. To resolve the problem, she was delegated to the Department of State, all the while remaining on the payroll of the World Bank. Wolfowitz was charged by the bank's ethics committee with organizing the transfer. And Ms. Riza received a significant raise in the bargain: She earns $193,590 a year today, more than Condoleezza Rice, and $60,000 more than she earned at the World Bank (but probably less than she would earn in the private sector).
This level of remuneration was set by Wolfowitz in obvious violation of the rule on conflicts of interest that this transfer was intended precisely to avoid. Consequently, there is no doubt that Wolfowitz is at fault. But, in other times, given that he had proposed not to intervene in the decision and that the ethics committee charged him with settling the problem, he could have been excused: Conflicts of interest are frequent at the World Bank and do not always degenerate into serious crises.
Last Thursday, the board threatened Wolfowitz with a no-confidence vote this week unless he resigned beforehand. That the board's reaction was so firm, is no doubt due in part to Wolfowitz's personality and his past, which limit his credibility, and hence that of the World Bank (and one wonders why they had not posed this question earlier). Moreover, he made the fight against corruption a priority and this scandal undermines his credibility in that domain all the more. It so happens also that several countries, including the United Kingdom, were skeptical with respect to the validity of the measures taken against corruption, in particular the freezing of loans. And finally, the Europeans are attempting to seize the opportunity to question the principle - implicit since the creation of the World Bank and the IMF - by which the United States chooses an American to run the World Bank and the Europeans designate a European to run the IMF. Some rumors suggest Tony Blair or Trevor Manuel, South Africa's minister of finance, as possible successors to Wolfowitz.
This rule (and generally the fact that the Americans and the Europeans arrogate to themselves the right to negotiate the presidency of the two institutions among themselves) is obviously very bad, and a transparent nomination process would be desirable. But the Europeans may be playing with fire by attempting to force the Americans' hand on this subject. They are threatening to stop contributing to the bank unless Wolfowitz leaves the presidency. This negotiation tactic does not seem to take into account the fact that Wolfowitz has disappointed his neoconservative comrades. In particular, they counted on him to implement the Meltzer commission report recommendations which advocated that the World Bank close down its lending operations and concentrate - in much reduced version - on gifts to the poorest countries. It's not completely out of the question that the Bush administration should decide to continue to support Wolfowitz, precisely to provoke the major crisis that the withdrawal of European contributions would not fail to provoke, all the more so as certain developing countries, like Venezuela, have already left the World Bank. Conservative editorialists call this the scenario of their dreams.
Would it be a disaster? That difficult question deserves a second article, but the likely answer is yes. The World Bank employs 8,700 - for the most part, competent and devoted - people around the world. It assures a certain level of coordination among donating countries, the action of which is frequently disorderly, redundant or contradictory. Its explosion would lead to a significant waste of human capital. It clearly needs in-depth reform, but the Europeans, in their haste, risk throwing out the baby with the bath water.
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