Wolfowitz Agrees to Resign World Bank in June

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World Bank President Paul Wolfowitz agreed to leave his post next month, marking the first time in the bank's history that its president has had to resign. Wolfowitz, a former Bush administration official, had been under intense pressure to leave due to allegations that he arranged a promotion and generous pay raise for his girlfriend.


It's MORNING EDITION from NPR news. Good morning. I'm Steve Inskeep.


And I'm Renee Montagne.

Here's the way that Paul Wolfowitz agreed to resign from the World Bank. He is leaving after he arranged a pay raise and promotion for a female companion, but the Bank absolves him of much of the responsibility, which leads to a question for NPR's Tom Gjelten, who's covering this story.

Good morning, Tom.

TOM GJELTEN: Good morning, Renee.

MONTAGNE: If Paul Wolfowitz acted in - I'm quoting - "good faith," as the bank says, why is he leaving?

GJELTEN: That's a good question, Renee. The statement from the World Bank Executive Board is really quite remarkable. With respect to that scandal over his girlfriend's pay raise it says, a number of mistakes were made by a number of individuals in handling the matter. And you're right, it says, Mr. Wolfowitz assured us he acted ethically and in good faith in what he believed were the best interests of the institution, and we accept that. And then the board lists what it says are Wolfowitz's accomplishments at the bank and thanks him for his leadership.

Now why then does he have to resign? That statement was basically the price that Mr. Wolfowitz demanded for resigning voluntarily. His lawyer said over and over he would not resign under a cloud. He made it clear he essentially wanted to be exonerated of any wrongdoing in connection with that pay raise for his girlfriend and he basically got that.

But you should not underestimate, Renee, how much bad feeling there was between Wolfowitz and the World Bank board. There was real anger at him on the part of a great many board members. That board statement makes it appear that it was Mr. Wolfowitz's decision to leave the bank, but you know it was not. He made it very clear he wanted to stay. And this is, after all, the first time in the history of the World Bank that its president has had to resign.

So that carefully worded statement was just what had to be said in order for his resignation to be arranged diplomatically. The alternative was for the board to fire him. That would have required a vote where the United States was on one side and its most important allies on the other side. No one wanted that.

MONTAGNE: Well, you know, one thing that this has brought up, focused new attention on, is what the World Bank does, actually. What did the institute do in 2007 so far, or 2006, and how much does it matter?

GJELTEN: Well, the bank has been essentially paralyzed for the last couple of months because of all this. I mean, many people have told me at the bank that they're hardly able to work. The bank - and if in fact Wolfowitz had been forced out, I think we would have seen a lot of criticism of the bank.

The bank is basically - people say the bank is no longer needed. It basically gives loans to countries. And in the 60 years since it was founded, of course, there's now a well-developed capital market so countries are able to get access to lending that they didn't have when the bank was founded.

However, the bank also makes a lot of grants to poor countries who don't have access to that. A lot of the bank money goes to them, so the argument in favor of the bank is that as long as there's global poverty, we do need an institution like the bank to help countries get ahead.

MONTAGNE: And has it been changed at all by this controversy?

GJELTEN: I think the most important effect of this whole episode is that it has focused attention on the internal operation of the bank. You know, Paul Wolfowitz has done a lot in focusing the bank on the issue of corruption and bad governance in the countries it helped. Now, in the aftermath of this, we're going to see the bank turning its attention to governance issues within itself, in other words in the way that the bank operates itself. I think the watchword here over the next few months is going be reform within the bank.

MONTAGNE: Well, just very briefly, Tom. Shaha Riza, Mr. Wolfowitz's girlfriend, what does this mean for her? We haven't really heard from her over this last couple of months?

GJELTEN: Well, I hope, Renee, that it means that we finally can hear from her. As I understand it, the bank had essentially barred her from saying or writing anything. Maybe if Paul Wolfowitz is gone she'll be able to return to the bank and go back to work. She's a widely respected Arab woman who is a strong advocate for democracy and woman's rights and she has an important role to play.

MONTAGNE: Tom, thanks very much.

GJELTEN: Thank you, Renee.

MONTAGNE: NPR's Tom Gjelten. And the text of the Bank Executive Board announcement of Paul Wolfowitz's resignation is at npr.org, along with a statement from Wolfowitz himself.

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Q&A: The World Bank at a Crossroads

The World Bank was founded in 1944, charged with the monumental task of eradicating global poverty. It offers loans to countries that might not otherwise get them. Since its inception, the bank has lent or given $400 billion.

Yet critics say the World Bank is a bloated, corrupt organization that has outlived its usefulness. Those criticisms have gotten a boost from the scandal involving outgoing bank president Paul Wolfowitz. He will step down from his post June 30 following accusations that he arranged a sweetheart promotion and pay deal for his companion, bank employee Shaha Riza.

Sebastian Mallaby is a senior fellow at the Council on Foreign Relations and author of The World's Banker. He spoke with NPR about the challenges facing the World Bank.

If you were appointed World Bank president, what would be your first priority?

To rebuild a very bruised institution. If the World Bank were a private company right now, its stock price would be down about 25 percent because of a loss of confidence from the staff and from the borrowers — and also, a loss of confidence from the shareholders, the rich countries who give the bank money. Everybody is down on the institution now.

Are the bank's problems a direct result of the Wolfowitz scandal?

I think Wolfowitz's management style has a lot to answer for. Part of it is that he came in with a strike against him because of the Iraq war, and part of it is he made it worse by appearing not to listen to people. He was just a bad leader.

For a long time, the World Bank was criticized for funding large projects, such as dams, in developing countries—projects that these countries didn't necessarily want but were, in a way, foisted upon them. Is that still a fair criticism?

That criticism was probably accurate around 1980. That criticism had some truth to it, and the World Bank responded. By the early 1990s, the more responsible critics were saying that, actually, when it comes to the interaction of the environment and development, the World Bank was the most responsible institution in the world. And yet the criticism carried on. It was almost because people had scored such dramatic success pointing out the World Bank's problems a decade earlier that they didn't want to give up on that shtick.

Critics of the World Bank argue that it is a vestige from another era and it is no longer needed. Do you agree?

No. I think that's wrong. The reason you need a World Bank is twofold. First of all, there are poor countries that still don't have much access to private capital markets, and these countries benefit from the World Bank.

Secondly, there are projects that support global public goods. Take the concern over global warming. If China is building a coal plant, the whole world has an interest in making sure it is a clean coal plant. The Chinese could borrow money themselves and make a clean coal plant, but they are more likely to do that if they are offered subsidized lending from the World Bank. Otherwise, the borrowing countries will say 'Why should we pay extra for a cleaner coal plant?' The benefits are shared globally, so shouldn't the cost be shared globally? That's where the World Bank can help.

Another critique of the World Bank is that it encourages imprudent borrowing and feeds an addiction to cheap loans. Is that a real problem?

It seems to me that private capital markets can easily create an addiction to cheap capital, too. That's what you've seen ever since Mexico defaulted in 1982 because it borrowed too much from New York banks. Another argument for the World Bank is to be a counter-cyclical lender, to lend more in the wake of, for instance, the Asian financial crisis in 1997, when all of a sudden, Southeast Asia didn't have any private lenders.

What sort of person would make an ideal president of the World Bank at this time?

You need, first of all, someone who understands the institution and doesn't need to learn on the job. Typically the World Bank leaders spend the first six months figuring out what this complicated animal is. A couple of names come to mind. One is Stanley Fisher, who is now the governor of the Central Bank of Israel, although he's an American citizen. In the past, he was the chief economist at the World Bank. He's an insider with man-of the-world experience. He's not purely a creature of the bureaucracy.



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