WOLFOWITZ SCANDAL TAKES BANK HYPOCRISY TO NEW HEIGHTS

by Sameer Dossani

Over the years, the World Bank's hypocrisy has been so extreme as to be taken for granted. The ironies of talking about ending global poverty, interest rates and export policies while staying at five-star hotels and attending lavishly catered meetings do get a bit tiresome for Bank-watchers like me to keep pointing out. But the latest developments involving World Bank president Paul Wolfowitz and his former partner, Shaha Riza, take this everyday hypocrisy to new heights.

When Paul Wolfowitz was appointed to head the World Bank group in 2005, he faced a problem. No, his problem was not that he would be facing the repercussions of his disingenuous arguments in favor of the illegal invasion of Iraq when he was at the Pentagon. Nor was his problem that other countries were opposing the appointment of a leading U.S. neo-conservative close the Bush administration with no development experience to what is arguably the most important position in development financing. Rather, Wolfowitz's problem was that others knew about his relationship with Shaha Riza, a World Bank employee. According to World Bank policies, your boss cannot be your lover. Seconded

When the World Bank board ethics committee met to discuss the issue, they recommended that Riza be "seconded" to somewhere else. In other words the World Bank would continue to pay her tax-exempt salary but she would work for another organization. Within a few months, she was working at the U.S. State Department.

All of this has been public information for years. What has not been public is the fact that just prior to Riza's departure to the State Department, Wolfowitz himself authorized a significant pay raise -- roughly $40,000 -- for her. Combined with another raise, Riza now receives a salary of $193,000 per year. That's more than the $186,600. her current boss, Condoleezza Rice earns before taxes. And, it's the equivalent of about $270,000 if she were not to enjoy the ludicrous World Bank privilege of tax-free status.

Leaving aside the question of whether or not World Bank employees should continue to receive outrageous perks including tax-free income, subsidized education for children and so on, the conflict of interest and nepotism are so glaring in this case, that even restrained foreign government officials who and media are demanding that something be done. Nepotism, Corruption, or Ignorance?

No matter how you classify these actions, things do not look good for Paul Wolfowitz. Another World Bank president may have been able to tough out such a scandal, but Wolfowitz has a number of problems, primarily of his own making, that make it exceedingly unlikely that he will be able to remain president of the World Bank much longer, and, if he does, that he will have any credibility to do anything with the beleaguered institution.

While many, myself included, are quietly hoping that Wolfowitz finds a way to stay on, thereby dampening the institution's ability to engage in harmful lending practices until the end of his five-year term in 2010, this is also an opportunity to push the agenda of governance reform within the institution. If Wolfowitz does leave, it will be very hard for the United States to maintain such tight control over an institution that has essentially served as an arm of U.S. foreign policy.

The biggest irony is that Wolfowitz's primary (some would say his only) agenda inside the World Bank has been to call for its transformation into an organization that battles corruption. Wolfowitz, who has banded around phrases such as "0 percent tolerance for corruption" and talked about the need to move "decisively and energetically" on an anti-corruption agenda, probably regrets his choice of words at the moment. It is all too easy for Wolfowitz's enemies, which include an estimated 90 percent of World Bank staff who opposed his appointment, to throw those words back in his face.

The World Bank Staff Association itself, which represents more than half of the Bank's employees, called for Wolfowitz's resignation last week. In an unprecedented move, Alison Cave, the Chair of the Staff Association said that Wolfowitz "must acknowledge that his conduct has compromized 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." Resign!

The anger that the Staff Association expressed last week at a meeting where Wolfowitz was shouted down with chants of "Resign!" must be understood in a larger context. Upon his arrival, Wolfowitz brought in two special advisors (paid astronomical salaries) from the Bush administration. Together with these advisors, Wolfowitz seems to be pulling the institution's strings in ways that his predecessors never attempted, including ensuring that three out of five top-level management posts went to officials of governments who supported the Iraq War.

Since Wolfowitz's appointment, about half of the Bank's senior managers, either unhappy with Wolfowitz's style or under pressure, have left. These and other developments leave Wolfowitz open to the claim that he is "neo-conning the Bank."

Another reason that the situation is especially serious for Wolfowitz is that his allies in the Bush administration are either completely discredited themselves (think former Defense Secretary Donald Rumsfeld) or they are under fire from so many other quarters that they are unlikely to spend precious political capital to defend the indefensible. Bush himself is likely to prioritize defending his embattled Attorney General Alberto Gonzales and his own failing "surge" policy in Iraq over standing up for Wolfowitz. Bigger Issues

Wolfowitz giving his girlfriend a more exorbitant salary than she had previously enjoyed is only the tip of the iceberg as far as World Bank governance is concerned. By convention, World Bank presidents are selected by the U.S. administration of the day. They are always U.S. citizens and are always sympathetic to U.S. interests. Among Wolfowitz's predecessors is Robert McNamara, another architect of another failed U.S. war, namely that of Vietnam. The convention of giving the World Bank presidency to a man (they are always men) chosen by the president of the United States is one indication of a stark reality: when it comes the World Bank and its sister institution, the International Monetary Fund, the U.S. vote is the only one that really counts. When questioned on issues of accountability in a panel discussion, one senior IMF staff member reportedly answered "Of course I consult. I consult with U.S. Treasury all the time."

And herein lies the real problem. These institutions, whether they are pushing governance reforms or economic reforms, insist that borrowing countries, and especially those countries that are the most dependent on aid flows, follow rules that no one in the U.S. or other developed countries follows or would be willing to follow. The Bush administration could do with a serious dose of the World Bank's anti-corruption medicine, but even those who would support such reforms do not suggest using Bank-style strong-arm tactics to implement them.

In the short term, here are some proposed solutions that would at least begin to address the hypocrisy that this situation highlights:

1) Get rid of Wolfowitz. Compared with allegations of war crimes, the sweetheart deal corruption charges seem petty, or would if he had not made a war on corruption his raison d'etre for the last two years. But there's no reason that he should not be held accountable. (Better yet, get rid of him and put him and the rest of the neo-conservatives on trial for their war crimes in Iraq and Afghanistan.)

2) Implement meaningful governance reform. No this does not mean giving India and China a few more percentage points in token shareholder voting rights. Instead it means taking measures to ensure that the institution is democratized. Considering a more United Nations, one-nation-one-vote governance structure could be a first step in this direction.

3) Transparency is a prerequisite for accountability. We would not know about the current situation if some World Bank employee had not cleverly leaked the information to the press the week before their Spring Meetings. Why should we be discussing crimes that happened almost two years ago? We need real transparency (think C-SPAN at World Bank and International Monetary Fund board meetings) and real accountability for the mistakes of the past.

Wolfowitz hasn't left yet but it's unlikely he will last more than a few weeks longer. Whoever takes the job next will inherit an institution that has failed basic standards of accountability and transparency, and has not made a dent in its supposed mission of poverty reduction. The new president will certainly have work to do. Some good house cleaning, including implementing real accountability and transparency measures -- for the bank and not just the countries that borrow from it -- would be a good start. One more step may be to start talking about how the Bank can make reparations for its past sins, especially those of pushing a failed economic paradigm onto developing countries.