Wolfowitz Feels the Heat at the World Bank

World Bank President Paul Wolfowitz i i

World Bank President Paul Wolfowitz faces reporters in Washington, April 12, 2007. Alex Wong/Getty Images hide caption

itoggle caption Alex Wong/Getty Images
World Bank President Paul Wolfowitz

World Bank President Paul Wolfowitz faces reporters in Washington, April 12, 2007.

Alex Wong/Getty Images

Part 1 of the Series

Paul Wolfowitz was one of the leading backers of going to war in Iraq. Now, as head of the World Bank, he faces controversy for moving to suspend aid to countries with corruption problems.

Shaha Riza

Wolfowitz faces criticism over pay raises and promotions that went to a bank employee, Shaha Riza, with whom he has been romantically linked. World Bank hide caption

itoggle caption World Bank

The spring meetings of the World Bank and the International Monetary Fund this weekend in Washington could not come at a more critical time for Bank President Paul Wolfowitz. After two years on the job, he faces challenges on many fronts.

Some governments say he has gone too far with his anti-corruption campaign. Some World Bank staff members complain that he doesn't listen. To make matters worse, Wolfowitz is now facing criticism over pay raises given to a female friend.

When Wolfowitz arrived at the bank in the spring of 2005 after four years as deputy defense secretary, it appeared that his reputation as an architect of the Iraq war would be his biggest problem. Several of the governments for which he would be working were highly critical of the U.S. policy in Iraq.

Robert Holland, the U.S. representative on the bank's board of directors, decided he needed to arrange a series of get-acquainted sessions where other board members could meet Wolfowitz and perhaps even come to appreciate the intelligence and passion that he brought to his new position.

"I had no doubt that because of his identification with the administration's Iraq policy, it was going to be a challenge," Holland says. Before long, however, it became clear that Wolfowitz's Iraq war connection would only be one issue among many.

Wolfowitz arrived at the bank determined, Holland says, to "shake up" the culture. He felt that the bank had not been taking a sufficiently tough line in dealing with allegations of corruption in the governments with which it was involved. In his first few months on the job, Wolfowitz moved almost unilaterally to suspend some high-profile bank projects.

Some of the governments complained to Joe Stiglitz, the chief bank economist under Wolfowitz's predecessor, saying that Wolfowitz was treating them unfairly.

"Accusations were brought about corruption in one particular country, and when that country said, 'We want to see the evidence, we want it prosecuted if there's a problem,' that evidence was not forthcoming," Stiglitz says. He characterizes the country in question as having "strong democratic procedures" and being determined to uphold the rule of law. "It wanted to make sure it was doing the right thing," Stiglitz says, "but it was not able to defend itself against the charges."

Stiglitz would not identify the country, but other former World Bank officials say the circumstances fit what happened in India. Wolfowitz and his senior management team suspended a huge health program there in response to allegations of corruption in the contracting process. The problems had been uncovered in an earlier inquiry, and investigators found that the bank staff and the Indian government were taking corrective actions.

The suspension came as a complete surprise to Michael Carter, the World Bank country director in India. Now retired from the bank, he says there were "no consultations" over the India project between the senior bank management and the local bank staff. Carter resigned from the bank, he says, because he believed the management's approach to alleged corruption in India was "seriously flawed."

Wolfowitz also faced criticism for his decision in 2005 to reject a proposed bank assistance strategy for Uzbekistan. That action came shortly after the government of Uzbekistan announced it would no longer grant U.S. military aircraft access to an airfield in Uzbekistan, thus hampering the U.S. war effort in Afghanistan. At a press conference in Washington on Thursday, Wolfowitz insisted that his decision to suspend World Bank activity in Uzbekistan had nothing to do with U.S. foreign policy concerns.

"The question for the World Bank is — given the substantial human rights violations that were taking place prior to that decision — we had real concerns about whether we could get transparency about where our money was going," Wolfowitz said.

Once again, however, the decision to suspend bank activities in Uzbekistan was made with minimal input from career bank professionals.

"I accept the fact that Paul Wolfowitz is president of the bank and has the right to do that," says Dennis de Tray, who was responsible for World Bank activities in Uzbekistan at the time. "But that he didn't discuss it with those of us who were knowledgeable, who had spent many months working on that strategy, who were fully aware of the sensitivities of it, struck me as creating an unnecessary chasm between that decision and the staff."

De Tray, who has since left the World Bank, says that morale among his former bank colleagues is a "serious" problem. "People don't fully understand where Paul wants to take the Bank, " he says, "and they find it demoralizing that he seems uninterested in the career professionals."

One survey showed that a large majority of bank staffers don't approve of Wolfowitz's management.

Robert Holland, who stepped down from the bank's board of directors a year ago, continues to defend Wolfowitz, however. Holland says that if a majority of the bank career staff disapprove of Wolfowitz's performance, "he's probably doing a lot of the right things." Holland attributes Wolfowitz's unpopularity among bank staff to a "political bias against him and a defense of the culture and the status quo."

In fact, Wolfowitz still has many supporters outside the World Bank. In his two years at the bank, he has broken with his former Bush administration colleagues on a number of issues, including the need to take urgent action to fight global warming. He was warmly received on a recent trip to Africa, where he repeatedly called on the U.S. government to boost foreign aid spending.

At the press conference Thursday, Wolfowitz was conciliatory toward staff members who have criticized him for relying excessively on two close advisers whom he brought with him to the bank, Kevin Kellems and Robin Cleveland, while failing to consult more closely with career bank staff.

Wolfowitz acknowledged concerns from board and staff members that his dependence on Kellems and Cleveland was "fine in the beginning, but the role of my two advisers needs to be more structured. I actually agree with that."

Wolfowitz still faces criticism, however, over pay raises and promotions that went to a bank employee, Shaha Riza, with whom he has been romantically linked. At the press conference, Wolfowitz said he regretted that he had not taken himself completely out of the negotiations over Riza's status.

"I made a mistake," he said, "for which I am sorry."

The criticism over Riza's pay raises would undoubtedly have been less pronounced were it not for Wolfowitz's outspoken campaign to improve governance in the countries where the bank has been active.

Bea Edwards, international policy director at the Government Accountability Project in Washington, says the Riza scandal was embarrassing for Wolfowitz and his staff.

"As an international organization, the World Bank and its president and senior staff cannot go around the world lecturing governments about corruption, malfeasance, nepotism, cronyism, favoritism and at the same time manifest those same practices at the bank itself," she said.

The head of the World Bank Staff Association on Thursday called on Wolfowitz to step down. After a meeting of the association in Washington, Alison Cave, the group's chair, released a statement saying that Wolfowitz's conduct "has compromised the integrity and effectiveness of the World Bank Group and has destroyed the staff's trust in his leadership. He must act honorably and resign."

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