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Wolfowitz and the World Bank

After toughing it out for way too long, Wolfowitz resigned as President of the World Bank on Thursday. He will continue in office until 30th June. There have been many calls for reform of the World Bank and of the IMF (its sister Bretton Woods Institution). Is reform likely?

He had been backed by President Bush who effectively appointed him and helped him out in office as long as he could. With an irritated Board, with European politicians calling for him to go, he was clearly on the slippery slope. The news of Wolfowitz’s resignation was greeted with jubilation on the part of staff of the World Bank. The institution has been in a state of demoralization and dismay over the period in which Wolfowitz was in charge. Wolfowitz it seemed preferred the advice of his appointed staff rather than of senior World Bank officials. This would have been just about tolerable had Wolfowitz acted with judgment and consistency but he did not. According to the BBC, Bank staff felt that Wolfowitz was running the Bank ‘as an adjunct of the Bush administration’. He treated Bank staff as if they were ‘the enemy’ and it due course this is what they became. However before agreeing to go, Wolfowitz demanded that the Bank accept that there were faults in the system and that the Bank’s approach to ethical issues needed to be reconsidered, as predicted by an early web-log on this site. This is a victory of sorts for Wolfowitz though the fact that he is going after such a short time in office says so much more than the face-saving words from the Board. If you wish to reform an institution and also tackle the issue of corruption on the part of debtor governments who misallocate funds, you need to gain the support and trust of staff. The broader issue was one of leadership.

The question of reform is in the air. The World Bank was founded with the IMF and the GATT as part of the outcomes of the Bretton Woods conference held by the allies before the end of the Second World War. The world has changed dramatically over the past sixty years and many have called for reform (even abolition or merger with a fundamentally reformed IMF). The Bank’s Presidency is effectively in the gift of the President of the United States, by convention rather than by the Bank’s rules. Bush’s support for Wolfowitz is another political misjudgment on the part of the administration that further undermines the capacity of the United States to be seen to be giving effective leadership on significant global issues (in this case world poverty). This is more bad news for Bush.

European governments came out against Wolfowitz. The White House then supported the idea of Wolfowitz remaining in office until the end of June, a move which is vehemently opposed by Bank Staff. This prevents an interim appointment from within the Bank and preserves the President’s patronage. The time is coming when such patronage even for the Bank’s biggest financial backer will not be acceptable. If the United States wishes to redeem itself it should opt now for the office to be open to the best international talent. This may be an imaginative step way too far for the Bush administration. The Office of President of the World Bank (and the equivalent office at the IMF, an issue that the Europeans would need to address) should be open to international competition and subject to the rules of transparency. Such a step would not be enough of a reform (financial restructuring in line with current global realities would also need to be considered) but it would be a start. Issues of ‘governance’ , 'democratization' and of ‘transparency’ (part of the Bank's own international agenda) need to start at home.