Thursday, August 28, 2014
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Wolfowitz and the World Bank at Bay

Will World Bank President Paul Wolfowitz’s troubles finally catalyze real change at the World Bank? Will there finally be an end to the archaic practice by which the President of the United States unilaterally appoints the head of the world’s most important development agency?

Facing an extraordinary rebuke from the Bank’s ministerial oversight committee and open revolt from his professional staff, Wolfowitz has faint hope of limping through the last three years of his term. The immediate uproar is over the exceedingly generous pay and promotion package that Wolfowitz awarded in 2005 to his girlfriend as compensation for leaving the Bank to pave the way for his arrival. At a time when the Bank has been emphasizing high governance standards as the key to development, the recent revelation of that arrangement’s details have dealt a serious blow to the Bank’s credibility.

But even if Wolfowitz is eventually forced to resign, nothing will be gained if US President George W. Bush is allowed summarily to choose his replacement, as US Presidents have been doing ever since the Bank was founded after World War II. Instead, the Bank’s head should be chosen in an open and transparent process that aims to select the best-qualified candidate, whether from the US, Europe, or the developing world.

Indeed, a big part of Wolfowitz’s weakness today is the way he came to his job, as an in-your-face appointment from a US administration weak at international cooperation. The World Bank is a development finance institution. But Wolfowitz’s background at the US State and Defense Departments gave him no real expertise or experience in either area. Instead, his claim to fame was his role as architect of America’s failed war in Iraq. By all accounts, Wolfowitz is brilliant, but it seems inconceivable that an open, transparent, and multilateral selection process would have chosen him to head the World Bank.

I reach this conclusion even though I am sympathetic to the Bush administration’s desire to catalyze change at the Bank. I have long advocated shifting the Bank’s center of gravity from lending to outright grants, a policy that the Bush administration strongly endorses. But choosing someone with no obvious background or experience in economic development was not the way to make progress on this front.

A more open selection process, indeed, would have zoomed in on the fact that Wolfowitz’s girlfriend worked at the Bank. This may seem a trivial issue, but it is not, given the Bank’s strong policies to protect against nepotism. If Wolfowitz were otherwise overwhelmingly the most qualified candidate, the selection committee may have found a way to finesse the issue, openly and transparently. But, given his questionable fit for the job in the first place, the girlfriend issue might have been disqualifying.

Why does the world meekly go along with the status quo and let the US dictate the Bank’s top position? It is a sorry tale of poor global governance. Europe does not get in America’s way because it wants to maintain Europe’s equally out-dated privilege of appointing the head of the International Monetary Fund, the Bank’s sister institution.

Asia has little choice but to defer to the US and Europe’s shenanigans because it is grossly under-represented in both organizations. As for Africa, its leaders are loath to do or say anything that might interrupt the flow of World Bank largesse.

Many people, including myself, have long complained about the leadership selection process at the World Bank and the IMF. How can the Bank and the Fund continue to go around lecturing developing economies on good governance and transparency but fail to allow change in their own houses?

Now and again, both organizations pay lip service to the issue. But so far, they have exhibited no real desire for change. To be fair, the IMF’s leadership is making a determined effort to give dynamic emerging economies, particularly in Asia, a bigger say in Fund governance. If carried far enough, this process would ultimately catalyze the necessary changes.

Unfortunately, the IMF’s rebalancing efforts are proceeding at a glacial pace. At the World Bank, nothing seems to be happening at all.

Perhaps when Gordon Brown becomes the UK’s next prime minister, he will be able to convince the G7 group of rich countries to lead the charge for change. As head of the Fund’s ministerial oversight committee, Brown understands the issues as well as anyone.

Or perhaps the Wolfowitz debacle will prove to be the catalyst. Maybe at last, the next World Bank or IMF president will come from outside their usual domains. There are plenty of great potential non-American candidates. South African Finance Minister Trevor Manuel has ably served as head of the World Bank’s oversight committee and would make a brilliant World Bank president. And it still could be a qualified American. What about Bill Clinton?

One way or the other, the Bank and the IMF leadership selection process urgently needs to be revamped. What the Wolfowitz debacle tells us most clearly is that the time for patience with the status quo is over.

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