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The World Bank Blues

Prepared by: Lee Hudson Teslik
April 24, 2007

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The scandal bogging down the World Bank is tawdry and eye-catching, the stuff of high political theater. Paul Wolfowitz, the Bank’s president, admits he made a “mistake” (IHT) by giving a promotion and hefty pay raise to his “companion” or “girlfriend” or “partner”—the media has yet to decide how precisely to identify her (Slate). Still, the specifics of the pay-raise scandal pale in importance to the underlying tug-of-war the incident has brought into focus, one which goes to the heart of how the Bank operates and the role it plays in the world.

With geopolitical trends sapping its power, the World Bank finds itself at an uncomfortable crossroads. CFR Senior Fellow Sebastian Mallaby argues in a recent Washington Post op-ed that this has been the case particularly since 9/11, after which Western countries tightened their purse strings on development aid. As a consequence, Mallaby says, the United States and Europe lost political clout in the developing world. This trend is perhaps most notable in Africa, where China has increasingly become the sugar daddy of choice, while simultaneously pushing to expand its African oil interests.

Historically, the World Bank stepped in at similar moments to lobby for aid increases. But with the Bank’s mandate muddled—in part, some say, due to the ambiguous agenda put forth by Wolfowitz—the institution has struggled to maintain its role as a moral cheerleader. Jessica Einhorn, a former managing director at the Bank, argues in a 2006 Foreign Affairs article that blame for the Bank’s waning relevance lies partly with its outdated financial structure, which lends too much money to middle-income countries.

The Wolfowitz scandal, which burst into the public eye last month, only strained these tensions, and worked to spiral the Bank into something of a civil war (Guardian). Several senior Bank officials called for Wolfowitz to resign, and a statement from the Bank’s Independent Evaluation Group, leaked to the Financial Times, offers a searing assessment, saying the Bank’s operations are being “jeopardized by serious governance problems” and a “crisis in leadership.”

Discontent over Wolfowitz stems at least in part from anger at the man who tapped him to head the Bank in 2005, President George W. Bush. Even back when Wolfowitz was first appointed, some Bank employees took the news of their new president with more than a touch of trepidation. He was perceived as a neoconservative Bush crony (NYT) at a time when unilateralism and American bluster were already wearing thin. Wolfowitz partially eased these concerns by making gestures to boost U.S. aid to Africa (BBC) in the face of Bush administration disagreement. But relations between Wolfowitz and his charges soon festered, particularly as he launched an aggressive anti-corruption campaign that some Bank officials said would cripple efforts to relieve developing world debt (NPR).

It would be easy to pawn off all the Bank’s troubles on Wolfowitz, but it would also oversimplify the matter. The Economist says the Bank’s board bears at least as much responsibility for a wayward agenda as Wolfowitz himself, particularly for the kinds of generic institutional backwardness that plagued the Bank well before Wolfowitz arrived at its helm. Still, the same article urges Wolfowitz to resign, voluntarily, so as to end the current quagmire and allow the bank to guarantee “that the real losers from the Wolfowitz debacle are not the world’s poor.”

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