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Wolfowitz Leaves Bank Under Cloud

Prepared by: Lee Hudson Teslik
May 18, 2007


World Bank President Paul Wolfowitz will step down June 30, ending a drawn-out dispute that cast a cloud over the Bank’s governance agenda. The Washington Post said Wolfowitz agreed to leave after it was clear he faced reprimand or dismissal by the Bank’s board over charges he provided a promotion and pay-raise to his girlfriend, a Bank employee. After protracted negotiations, Wolfowitz won acknowledgement from the Bank that he acted “ethically and in good faith,” saying he was resigning for the good of the institution. A board statement said “a number of mistakes were made by a number of individuals in handling the matter” and a review of the Bank’s governance procedures was necessary.

Wolfowitz’s departure won’t necessarily end the World Bank’s woes. First there is the issue of picking a successor. Washington currently bears responsibility for this process, though European leaders say they are keen to change this dynamic (FT). Any candidate too close to President Bush could be a political non-starter. Der Spiegel suggests three possible candidates: Paul Volcker, the former U.S. Federal Reserve chairman; Tony Blair, Britain’s outgoing prime minister; and Stanley Fischer, the governor of the Bank of Israel. The Wall Street Journal cautions that the selection process could be contentious and argues a highly publicized dogfight could further weaken the Bank’s standing in the world.

A slew of policy questions also remain unanswered. One primary concern is whether a new president would choose to maintain Wolfowitz’s emphasis on the bank’s anticorruption campaign—the credibility of which, many experts believe, suffered dramatically over the course of the present scandal. More fundamentally, a successor will have to navigate uncomfortable questions of the Bank’s relevance in an era where private equity is increasingly targeting the developing world (HBS).

For Wolfowitz’s political career, however, this may be the end of the line. With popular resentment of the Iraq war already prevalent, his 2005 appointment as World Bank president, in the face of staunch opposition, was essentially a second chance to make good. But for a variety of reasons, some of which were undoubtedly beyond his control, Wolfowitz’s presidency never took flight.

Many trace Wolfowitz’s problems to his previous incarnation as the architect of President Bush’s strategy to “democratize” the Middle East, beginning with Iraq (New Yorker). Despite early efforts to boost aid to Africa (BBC) in the face of Bush administration objections, lingering resentment about Iraq undermined Wolfowitz’s efforts win the support of many at the Bank. He also drew heavy criticism for his anticorruption push, which many analysts say undermined bank efforts at debt relief (NPR). Now, with questions turning to Wolfowitz’s legacy, supportive words are few and far between. In a podcast, CFR’s Sebastian Mallaby says Wolfowitz “was deemed to be a pretty bad manager from the start,” and “dug himself in further” through indecisiveness and stubborn loyalty to Bush administration insiders, all of which came at the Bank’s expense. For Wolfowitz, who spoke at CFR ahead of the Iraq war in 2003, the World Bank job in many ways represented a chance for political redemption (NYT). Whether he’ll get another such opportunity remains to be seen.

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