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World Bank President Vows to Stay in Post, Despite Criticism

April 16, 2007 at 1:40 PM EDT

JIM LEHRER: The bank’s semi-annual meeting in Washington this weekend was overshadowed by calls for its president, Paul Wolfowitz, to resign. At issue: Wolfowitz’s involvement in the compensation and promotion of an employee who is also his girlfriend.

Wolfowitz became president of the World Bank in 2005. Soon after, Shaha Riza was assigned to the State Department to avoid a conflict of interest, but she remained on the bank payroll, and Wolfowitz helped arrange a pay raise for her, bringing her total salary to nearly $200,000 a year tax-free.

The World Bank’s Staff Association has called for Wolfowitz to step down. On Thursday, the bank’s board of directors said it was investigating the matter and, quote, “will move expeditiously to reach a conclusion on possible actions to take.”

Late last week, Wolfowitz apologized, saying he shouldn’t have been involved.

PAUL WOLFOWITZ, World Bank President: I made a mistake for which I am sorry. But let me also ask for some understanding. Not only was this a painful personal dilemma, but I had to deal with it when I was new to this institution, and I was trying to navigate in uncharted waters.

I didn’t volunteer to get involved in this. I didn’t get involved for any personal reasons, but rather to resolve something I think posed institutional risk. I didn’t hide anything that I did. And I’m, as I said, prepared to accept any remedies that the board wants to propose.

JIM LEHRER: Member countries issued a statement this weekend that the matter was of great concern for the bank’s reputation.

Since its creation in 1944, the World Bank has always been headed by an American, nominated by the president and confirmed by the bank’s board. The bank’s original purpose was to finance reconstruction of nations devastated by World War II.

But today, the 185-nation lending institution focuses on developing countries. It provides long-term loans for education, agriculture and industry at low rates. In return, developing countries are supposed to improve their economies, limit corruption, and foster democracy.

Wolfowitz was nominated by President Bush to head the bank in 2005. Before that, he was deputy defense secretary and a key architect of the Iraq war. In his two years as the president of the bank, Wolfowitz has called for withholding aid to countries that don’t fight corruption.

Yesterday, Wolfowitz insisted he intends to stay.

PAUL WOLFOWITZ: Look, I believe in the mission of this organization, and I believe that I can carry it out. I’ve had many expressions of support, as well as the things that you referred to. I come back to what we agreed to in that communique, which is that we need to work our way through this. The board is looking into the matter, and we’ll let them complete their work.

Pressure to get rid of Wolfowitz

JIM LEHRER: More on this story now from Krishna Guha of the Financial Times. Just for the record, Krishna, I misspoke just now when I said that fostering democracy was one of the purposes of the World Bank. That's not true, is it?

KRISHNA GUHA, Financial Times: No, it's not. The World Bank promotes good governance in the countries that it deals with, but it doesn't have an explicit political agenda to promote democracy.

JIM LEHRER: OK, that correction having now been made, are there serious pressures now by the bank board to get rid of Paul Wolfowitz?

KRISHNA GUHA: That's right. Indeed there is, but the board is divided. And the divisions reflects divisions among the international community as to what to do about Mr. Wolfowitz.

European nations in particular feel that he's committed a very grave breach of corporate governance, and they would very much like to see him out. They're not quite sure how aggressively they should push for it.

The U.S. is standing by Mr. Wolfowitz. And the other countries all have different opinions as to what should be done, as well, so there isn't yet no consensus as to what should happen in this affair.

JIM LEHRER: All right, explain to us the governance and how the board -- who makes up the board, and what their power is. Give us a little lesson here on the World Bank governance.

KRISHNA GUHA: Absolutely. Well, the World Bank has 24 executive directors. Each of these directors represents either one of the big shareholder governments, like the U.S. or the U.K. or Japan, Germany, or a cluster of some of the smaller ones. They act as representatives of their country or countries on the board.

So, in theory, they are the guys who will make the ultimate decision about what should happen to Mr. Wolfowitz. But in practice, these are mid-level bureaucrats; they will do what their bosses in the national capitals tell them to do.

JIM LEHRER: So it's really an election by countries rather than by people, right?

KRISHNA GUHA: Well, that's right, except even that isn't, strictly speaking, true, because although in a legal sense -- and it's like a formal sense -- the board decides who is president, as I think you mentioned in your preamble, ever since the foundation of the World Bank, the tradition has been that the U.S., as the largest single shareholder, gets to choose who runs the bank.

No process to remove president

JIM LEHRER: OK. Now, Wolfowitz, as we ran the clip from yesterday, he is saying, I'm not going anywhere. Is there a process, a procedure that could be followed by this board if they'd made a decision -- let's say of the 24, there was some kind of majority consensus that Wolfowitz should go. Is there a process to make him go?

KRISHNA GUHA: The problem is, there really isn't. We're in uncharted waters here. And that's exactly the phrase that one of the board directors used with me when I spoke to him about this.

The problem is the gift of nominating the bank president has always been given to the United States' president, so the idea that he could then get voted out by the board, perhaps against the objections of the U.S., runs against the entire practice of the bank since its foundation.

So the thinking is, it would be quite extraordinary if this ever got to the point where we'd actually be calling a confidence vote with countries taking different sides at the board. No one wants to go there; they're desperately trying to figure out a way of squaring this so they can have reach eventually a consensus.

JIM LEHRER: And, of course, for the record, the president, President Bush, and his spokespersons, have clearly said they support Paul Wolfowitz and are in favor of his continuing. And that's a big thing, right?

KRISHNA GUHA: That's a very big thing, but it's not quite the whole game. You see, it's probably in the president's gift -- no, it is in the president's gift to stop anyone driving Mr. Wolfowitz out of the bank, but Mr. Bush can't give Mr. Wolfowitz a manageable bank to run.

You see, the staff are in revolt. There's nothing the president can do about that. The bank is in the midst of a fundraising round, where it needs to raise close to $30 billion to replenish its main lending facility for all these poor countries. The vast majority of that money doesn't come from America. Much more comes from Europe.

So Mr. Wolfowitz, and by extension the president, have to consider the opinions of other countries, too.

Wolfowitz's role in war policy

JIM LEHRER: All right. Based on your reporting, what would you say the -- just let's go through the factors that are now pressing against Wolfowitz and toward his departure, obviously, the personnel thing that everybody has talked about.

But aren't there other issues, too, some internal things in the bank, as well as his history as deputy defense secretary? Are they also at play here, too, do you think?

KRISHNA GUHA: No question. No question. I mean, look, to be fair to Mr. Wolfowitz, there have been a group of people who've never given him a fair shot. Ever since he came in with all the baggage he carried from the Iraq war, there have been people who have simply wanted to be shod of him from the very beginning.

But there have also been issues of his own making that have made him enemies within the bank and its shareholders, two big things, I would say. First of all, when he came in, after a little while, he made the anti-corruption and good governance a great crusade of his.

Now, it's a very important issue, and many would agree he was right to raise it firmly, but he did so in a manner that alienated a lot of his own staff and a lot of the shareholder governments. They thought that he was suggesting that no one else had taken it seriously before he arrived and that he was deciding who was corrupt and who wasn't in a rather ad hoc and slightly arbitrary manner.

The other big beef a lot of people have is his management style. When Mr. Wolfowitz arrived, he brought with him a number of trusted aides, not very many, but very close advisers. And career bank veterans, some of whom have 20, 30 years of development experience, got very angry when these newcomers ended up making a lot of the main decisions.

JIM LEHRER: So some people have suggested though that the personnel issue is really an excuse because of these other -- in other words, these other things were already there, the Iraq war thing plus the two issues you just raised, that if those issues weren't there, the personnel thing would never have caused the heat that's on him right now. Do you agree? What does your reporting reflect on that?

KRISHNA GUHA: I would rephrase that and put it in a slightly different way. It seems to me an open-and-shut case that he blundered in a serious manner, as far as corporate governance is concerned, in this issue.

JIM LEHRER: He's admitted and said he made a mistake.

KRISHNA GUHA: The question then is, how much political capital can he draw on in a moment like this, where it is an open debate in a sense as to whether this is a resignation offense or not?

In such a situation, it depends enormously on whether you can draw on reserves of support among your staff, among your colleagues, among your board directors, or whether, in fact, you've burnt so many bridges that, in your moments of need, people aren't willing to come up and fight for you.

Replacing a World Bank chief

JIM LEHRER: If, in fact, he does leave, what's the process for replacing him?

KRISHNA GUHA: Well, again, this is a more open question than you might think. By convention, the U.S. president would simply choose another World Bank chief, and that probably is what would happen.

But there's been, for a time, a growing chorus of demand saying, this stitch-up, by which the U.S. gets to nominate the boss of the World Bank, and the Europeans in return get to nominate the boss of its sister institution, the IMF, which deals with international finance, this stitch-up, people say, shouldn't carry on.

So if Mr. Wolfowitz were run out of town, there'd be a demand for a completely fresh approach to deciding who ran this institution. And that's something the administration would have to consider, as well.

JIM LEHRER: Has there already been discussion of that? I don't mean about Wolfowitz, but if we -- when the time comes to select a new president, whenever it comes, we're going to do it a different way?

KRISHNA GUHA: Not yet at the official level. This is not something that the administration has ever talked about. It's not something that the other major governments involved in the bank have ever talked about.

But it's a serious debate already, if you like, among the experts in this field, among NGOs, among academics, among former officials of these institutions. So it's not something that we should preclude.

JIM LEHRER: OK. Thank you very much.