WOLFOWITZ RESIGNS FROM WORLD BANK

by Emad Mekay

(IPS) WASHINGTON -- World Bank President Paul Wolfowitz, who has been warding off accusations of favoritism and nepotism at the Washington-based institution, will resign effective Jun. 30, the first president ever to be forced out.

"The Executive Directors acknowledge Mr. Wolfowitz's decision to resign as President of the World Bank Group, effective end of the fiscal year (June 30, 2007)," the 24 Bank directors, who ran the institution's day-to-day affairs with Wolfowitz during his two-year tenure, said in a statement late Thursday.

The directors appear to have given Wolfowitz the graceful exit he's been fighting for and accepted, though not so warmly, his request that he resign in return for their acknowledgement that he was not the only person at fault in the controversy. In their statement, the directors said that the episode, which started seven weeks ago with leaks revealing that Wolfowitz had engineered a generous promotion and salary increase for his girlfriend and fellow Bank employee, Shaha Riza, that did not conform to Bank regulations, showed that the Bank's governance system needed urgent repair.

Despite his initial public apology, Wolfowitz has lately maintained that the Bank's Ethics Committee, the board's panel which would have approved Riza's deal, also erred by not being clear in its directions and guidelines.

"One conclusion we draw from this is the need to review the governance framework of the World Bank Group, including the role as well as procedural and other aspects of the Ethics Committee," said the directors.

"It is clear from this material that a number of mistakes were made by a number of individuals in handling the matter under consideration, and that the Bank's systems did not prove robust to the strain under which they were placed," they added.

The directors said they would continue discussion on arrangements for the interim period as well as the governance issues. They also said that they will start the nomination process for a new president immediately.

In his own statement, the 63-year-old Wolfowitz, who came to the Bank from the Pentagon in June 2005, said he was pleased that directors consented that he "acted ethically and in good faith."

He also sided with the directors in calling for reform of the Bank's governance system.

"Hopefully the difficulties of the last few weeks can actually strengthen the Bank by identifying some of the areas of governance and human resource management where reform is needed," Wolfowitz said in a lengthy statement, in which he reviewed his work during his two-year tenure.

Wolfowitz became entangled in the controversy seven weeks ago after Bank whistleblowers leaked to the Washington based non-governmental organization Government Accountability Project (GAP) several document s that showed Wolfowitz pushing a high pay raise in a secondment deal to the U.S. State Department for his girlfriend, which he claimed did not violate the Bank's code on conflicts of interest.

The following days and weeks saw Wolfowitz, once the high-riding number two man at the U.S. Defense Department and the leading architect of the ill-fated Iraq war, trying to cover up the controversy before eventually making a humiliating public admission that he had made a "mistake."

Calls from the Bank's staff, senior management and officials from across the world poured down on the Bank for Wolfowitz to quit the organization. The nepotisim charges added fuel to an internal simmering revolt over the conduct of his close aides and the more than generous pay they were getting.

The Bank, which critics have long accused of getting away with harmful policies and practices in developing nations away from the gaze of the media, now received unprecedented media attention because of the evolving controversy.

"There was no way Wolfowitz could have continued on as World Bank president. He and his associates have been caught repeatedly misleading Bank staff and the media. His credibility was shot," said Dylan Blaylock of GAP.

The resignation announcement Tuesday quick rekindled calls for fixing the "real problem" at the Bank -- namely its governance structure.

"The scandal surrounding Paul Wolfowitz has exposed systemic problems in the way the World Bank is run," said Bruce Jenkins of the Bank Information Center, an independent watchdog group in Washington.

"While his resignation is a step in the right direction, one must ask: How did a senior Pentagon official in charge of orchestrating a disastrous war become the leader of the world's premier development institution in the first place, and why did the Bank's Board of Directors fail to adequately oversee the actions of the institution's chief executive?"

"The recent furor around Mr. Wolfowitz's actions calls into stark relief the need for the Bank to swallow its own medicine and to structurally adjust how it is governed or risk deepening its crisis of legitimacy," added Jenkins.

Since the Bank was established in the 1940s, the U.S. government has designated the president of the World Bank without consulting other member nations, while European governments designated the managing director of its sister institution the International Monetary Fund.

"After 63 years it is time to have open, merit-based selection of these leaders," said Jo Marie Griesgraber, executive director of the New Rules for Global Finance Coalition.

"The Wolfowitz scandal is but a natural consequence of the 'old boys' club' way in which the World Bank and IMF have been governed. It provides an opportunity to end the anti-democratic behavior of the world's great democracies, whereby the U.S. president names the World Bank president and a small coterie of European finance ministers name the IMF managing director," she said.

The international development group, Oxfam, which had early joined in the call for his ouster, said the next move falls on the shoulders of the rich nations that control the World Bank -- the United States and European nations.

"The U.S. and other rich countries must now show that they are serious about good governance by allowing the next head of the Bank to be appointed based on merit through an open accountable process," said Bernice Romero, advocacy director of Oxfam International.