Two months into his tenure as World Bank President, Paul Wolfowitz has not yet shown his hand. Despite having appointed new top management at the bank, his deeper intentions remain unknown.
When former US under-secretary of defence Paul Wolfowitz took the helm of the World Bank on June 1 this year, there were fears that he might try to turn the bank into a "tool of statecraft" for the Bush administration and an instrument of neo-conservative ideology. He has shown few signs of doing so as yet. Instead, a view is gaining ground that he might try to alter the institution in a different way by scaling back its structure and changing the basic thrust of its operations.
Wolfowitz himself has given few clues as to his intentions, beyond making clear that Africa could become a prime focus of World Bank attention, as well as problems of climate change and infrastructure provision. Developing nations' use of global energy resources could also become an issue for the Bank. The former dean of the Johns Hopkins School for Advanced International Studies has been indulging his reputation for being a "thinking man" rather than globe-trotting around his global constituency to learn about development at first hand.
Back to Meltzer?
This has strengthened speculation that he might announce changes to the bank's structure during the annual meeting, taking as his blueprint proposals made five years ago by a US commission led by Dr Alan Meltzer, who some say is a "close confidant of the Bush administration". Meltzer favoured a radical downsizing of the Bank, changing its name to World Development Agency, while handing over many of its functions and much of its capital to regional development banks.
Wolfowitz's maiden speech to Bank governors will thus be a focus of keen attention, not least because shortly after the Washington meetings heads of state from around the world will gather in New York for the UN Millennium Summit. Their aim will be to get agreement on a doubling of aid transfers to particularly needy areas, especially Africa. The role of the World Bank and other development banks in the transfer process is assumed to be pivotal.
Meltzer's 80-page report in March 2000 has been largely forgotten since, as has the 1996 report of the Development Committee Task Force on Multilateral Development Banks, along with others that aimed to set the development banks on a new course. But one senior World Bank official who served as a special adviser to former president James Wolfensohn around the time of the Meltzer report told Emerging Markets that it is "back on the table".
Parallels
There are parallels between what Meltzer proposed and what Wolfowitz and the US are doing. "The World Bank," said Meltzer, "should become the principal source of aid for Africa until the African Development Bank is ready to take full responsibility." When Wolfowitz took over, he duly declared that a priority would be "transforming Africa into a continent of hope". The Bank has since offered $678 million to Nigeria, Madagascar and Benin for poverty reduction, economic diversification and political reform.
Meltzer also said that "the World Bank and regional development banks should write off their claims against all heavily-indebted poor countries." Under pressure from the US and Britain, G8 finance ministers have recently agreed to such an initiative, and Wolfowitz is at the centre of this, with the Bank as well as the IMF required to write off their debts. Meltzer called too for a shift from loans to grants by multilateral development banks – yet another measure that has become a tenet of development faith under the Bush administration.
"Provision of improved levels of health care, primary education and infrastructure, once the original focus for development funding, should again become the starting point for raising living standards," said Meltzer. Wolfowitz has said the World Bank went too far in disengaging from infrastructure financing. "Development is not just about pouring concrete, but it does require concrete and water and electricity. The Bank now expects to increase infrastructure loans by about $1 billion a year over the next few years," an official said.
When Wolfowitz's appointment was announced, some drew parallels with 1967 when Lyndon Johnson appointed then secretary of defence Robert MacNamara as president of the World Bank, to "get him out of the way". Likewise, there were suggestions when president George W. Bush failed to appoint Wolfowitz as national security adviser that he too was being shuttled "out of the way". But some see Bush's tactic more as using Wolfowitz to implement a US agenda at the Bank.
Climate change
Bush disavowed the Kyoto Protocol on climate change soon after assuming office, promising that the US would find a better alternative. Here, too, Wolfowitz is following through and has promised to work out a plan running beyond 2012 when the Kyoto Protocol expires. He and British chancellor Gordon Brown are expected to chair a meeting on climate change during the annual meetings. "This is an opportunity to be more comprehensive, more strategic and longer term in our own relationship with the issue," says Ian Johnson, World Bank vice-president for environmentally and socially sustainable development.
A critical question, apart from what Wolfowitz's World Bank will do, is where will it do it. He has switched the focus to Africa, and most of his relatively few overseas trips so far since taking over the helm of the Bank have been to that continent. Some have speculated that the Middle East could become another principal area of attention for the Bank under a president whose own interests were heavily entwined with that region during his years with the US administration.
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Wolfowitz has yet to visit the Middle East since taking over his new office, but he did pay a visit in August to Pakistan – a country seen as being in the front line of the "war on terror" that the US has been waging since 9/11. "I am delighted to be able to visit Pakistan very early in my tenure, and discuss how the World Bank can support the progress of this important country," he remarked, while announcing that the Bank would increase its aid to Pakistan to $1.5 billion in the current financial year. (He also promised to step up aid to India to $3 billion a year over the coming three years.)
The big question, however, is how far the World Bank will remain engaged in Asia as a whole, and in Latin America. Yet again, Meltzer may offer guidance: "All country and regional programmes in Latin America and Asia should be the primary responsibility of these areas' regional development banks," declared Meltzer.
"Wolfowitz is quiet and in a listening mode," one Japanese finance ministry official told Emerging Markets. "Maybe he will focus again on basics and go the way of the Meltzer Report." Wolfowitz has brought Karl Jackson, a professor of South-east Asian Studies at the Johns Hopkins University School for Advanced International Studies into his circle of close advisers, but whether this is to cement cooperation with the region or to advise on disengagement is unclear as yet.
Meanwhile, there is speculation about how Wolfowitz will fill senior slots at the World Bank that are currently vacant. One is the position of chief financial officer, previously occupied by Jeffrey Goldstein, a Wolfensohn ally who quit shortly before the former president did. The calibre of whoever is appointed will show how important and perhaps how large the Bank's financial operations will be in future, insiders say. Likewise, who is chosen to head the International Finance Corporation could signal whether IFC operations might be wound down in favour of private capital market institutions.
What should Wolfowitz do? Leading political thinkers give their advice
Ali Allawi, Minister of Finance, Iraq
I worked in the World Bank throughout the 1970s as a young professional there. I was there during the era of Robert McNamara, who was previously US secretary of defence. He was also involved in an unpopular war. But he basically turned the World Bank around. He gave it new life and new direction, and the 1970s was probably, by my reckoning from my experience while I was there, one of the World Bank's finer hours.
So coming from a background in the department of defence and being involved and engaged in the Iraq war does not really preclude Mr Wolfowitz from doing a top-rate job. I know he's a first-class intellect, and he has been involved in the administration and management of large organizations.
The World Bank is a peculiar place as we all know because it's a multilateral body. It's a very multicultural place, but it has a staff that could be considered the elite in terms of intellectual abilities, at least as professionals. Managing this, directing this and setting the objectives right, Mr Wolfowitz is also following quite a strong act, that of Mr Wolfensohn.
I don't think that Mr Wolfowitz would not in any way rise to the occasion because of some kind of perceived handicap that he might have. I think also being a man of great idealism, for those who know him, his idealism sits well with the idealism – the culture of idealism – of the World Bank. By and large, I think he should and will continue the trend of an engaged presence in the developing world. I think he'll do a tremendous job.
Anwar Ibrahim, former Deputy Prime Minister, Malaysia
I believe that the World Bank remains the most critical institution for international development. There have been flaws in the past, but I believe the current leadership now has the capacity to reflect upon past experiences and to chart a new course.
There were a lot of concerns initially about Paul Wolfowitz' appointment, but as I have said – and I reiterate – I've known him personally on the issues of poverty eradication, governance, democracy and reform. He has been very passionate and consistent over all the decades. I've known him since he was at SAIS, Johns Hopkins [University], and he had also proven himself to a large extent when he was ambassador to Indonesia. Now that he's taking the lead at the World Bank, he has shown his capacity and eagerness to listen and reflect on the issues.
I think criticism insofar as his role in the war in Iraq is concerned is largely legitimate – I've been consistently opposed to the war in Iraq, an issue on which I chose to disagree with him. But it should not prejudice our assessment of the man, and his passion for freedom and development, and particularly in the field of competence of the World Bank. This is an area to which he has given so much attention, and now that he's no longer in the [US] administration, he's able to pursue this programme.
To me it's quite clear that Wolfowitz is guided by the terms of reference and field of competence of the World Bank. I would stress, as I have emphasized to him personally, that the issues of governance and corruption are to my mind paramount. The World Bank needs to do more, disburse more funds to alleviate poverty, especially in the HIPC countries. But these funds need to be tied to transparency and governance, because they can be squandered by poor management and endemic corruption [in developing countries].
Kenneth Roth, Executive Director, Human Rights Watch
With his often-pronounced belief in democratic governance, Paul Wolfowitz is well placed to build on former president Jim Wolfensohn's reforms of the World Bank. Wolfensohn is remembered for promoting transparency and popular participation in the development of strategies to address poverty. He also fought corruption by pressing governments to open up to the scrutiny of their citizens. Wolfowitz's challenge is to reinforce these trends, with the aim of strengthening the Bank's responsiveness to the poor.
Despite Wolfensohn's legacy, the Bank often still finds it awkward to push for a political environment permitting the full popular participation that is needed to hold policy-makers accountable. Wolfowitz should ensure that all Bank staff members see protecting civil society as a primary part of their mandate, because it is the best way to ensure that development plans are responsive to those with the most acute needs. He should also broaden the Bank's concept of "good governance" to include not only fiscal transparency but also democratic governance, so that governments can be held accountable for implementing development plans and avoiding corruption.
In addition, Wolfowitz should build on some of the promising initiatives that have begun within various parts of the Bank. For example, the International Finance Corporation is moving toward incorporating respect for core labour rights into its lending agreements. Because that practice helps to strengthen civil society and spread the benefits of economic growth to more workers, it should become standard procedure throughout the Bank. Wolfowitz should also take on the Bank's culture, which still too often rewards the quantity of lending more than the quality of steps taken toward creating the political conditions that are best for reducing poverty.
Wolfensohn made significant progress over the past decade in opening up the Bank to the impoverished people it is meant to serve. Wolfowitz's challenge is to build on that momentum.
Wangari Maathai, Deputy Minister of the Environment and Natural Resources, Kenya; Nobel Peace Prize, 2004
There is a great need to nurture the basic principles of good governance, sustainable management of the environment and cultures of peace. It is upon these three pillars that the process of development rests. But the essential role of the environment is still marginal to discussions about poverty. Environmental degradation, including the loss of biodiversity and topsoil, accelerates worldwide causing development efforts to falter. Without better management of resources, the achievement of the Millennium Development Goals could easily remain a dream. I urge the World Bank to prioritize the environment in the development agenda.
Further, a strong civil society promotes good governance and therefore creates the conditions necessary for development. The African Union is overseeing formation of the Economic, Social and Cultural Council (ECOSOCC), comprised of civil society organizations, to advise it on issues related to the African people. It is critical that the World Bank and other partners create concrete channels that ensure people's participation in development and support opportunities like ECOSOCC in Africa and other regions.
Perhaps the most unrecognized problem in Africa today is the disempowerment of her people. This manifests itself as fear, low self-esteem and apathy. For Africa to be free of dehumanizing poverty, her people must be empowered – with knowledge, skills and tools to take action. These are all areas the World Bank should prioritize.
Towards this end, debt relief is very important because it allows governments additional resources to invest in initiatives that give people the means to help themselves. I know the World Bank can play a leading role to make this a reality – and it should.
Ian Vasquez, Director of the Project on Global Economic Liberty, Cato Institute
The World Bank's central functions are to provide aid and advice. There is plenty of scepticism, inside and outside of international financial institutions, about the effectiveness of aid in reducing poverty or promoting growth. It is in the world of ideas, however, that the bank can do the most good.
Specifically, the bank's research and advice should focus clearly on the importance of economic growth. It is only with growth that broad development goals—including poverty reduction and improvements in the whole range of human development indicators—can be achieved and sustained. China and India are only the most obvious examples of the widespread progress that a decade or more of high growth in very poor countries can accomplish. The record of growth is not only a reminder of the marginal role of aid, but contrasts sharply with the record of aid and many direct government interventions.
Although many of us believe that the Bank is not reformable and should be closed, the Bank's performance could be vastly improved if accountability were introduced to its lending process. The Bank should set measurable outcome targets for itself and be subject to independent audits rather than in-house assessments. At present, the Bank is largely operating in the blind, with only 2% to 5% of its projects being properly evaluated for effectiveness. For an institution that preaches transparency, President Wolfowitz would surely agree that it is unacceptable that the world simply has to take the Bank's word on how well it is performing.
Roger Bate, Resident Fellow, American Enterprise Institute
This has been Africa's year, with the continent enjoying the attention of the EU, US, G8 and the UN. So far the focus has been on aid and debt relief; each rich nation or bloc is eager to give more in fiscal support to overcome the myriad tragedies on the continent.
But Africa provides many of the most important reminders of why countries grow rich – and as importantly, why they don't. For as the Commission on Africa said recently, lack of "good governance ... is what we believe lies at the core of Africa's problems".
Nevertheless, Wolfowitz has already made a bold first move by appointing two European bankers to fill top slots at the institutions: Vincenzo La Via, chief financial officer of Banca Intesa, Italy's largest bank, as chief financial officer; and Lars Thunell, chief executive of SEB, Sweden's leadin corporate bank, as executive vice president of the Bank's International Finance Corporation, which lends to the private sector in developing countries. The selections are subject to approval by the bank's 24 executive directors.