World Bank president Paul Wolfowitz arrives in Singapore facing growing criticism both of his management style – conducted through a “palace guard” of US conservatives with which he has surrounded himself during his first year in office – and the anti-corruption drive that has been his main policy innovation.
In interviews with Emerging Markets, recent departees from senior posts at the Bank urge Wolfowitz to work directly with its senior development professionals. Failure could be fatal, they say – and this is borne out by insiders, who have spoken to us off the record.
Grave doubts have also been expressed about the value of the anti-corruption drive – and about the lack of a coherent strategy that sees beyond it.
Management
The frustration felt by some senior officials at their inability to communicate directly with Wolfowitz seems to be particularly acute. He is “just not there” as far as interpersonal contact among the highest echelons of the Bank is concerned, one senior staffer (who declined to be named) complained to Emerging Markets.
The talk in the corridors of the World Bank is that even high-level managers have to deal not with Wolfowitz but with Robin Cleveland, the “senior counsellor” whom he brought in from the US Office of Budget Management, where she was associate director. “No vice-president can talk to the president without seeing Ms Cleveland first,” complained a senior executive, echoing the frustration of others in the Bank.
Wolfowitz has not helped his image by surrounding himself with like-minded conservatives from the Republican Party. Apart from Ms Cleveland, he brought in Kevin Kellems, formerly an aide to US vice-president Dick Cheney, as senior adviser, and has made Suzanne Rich Folsom, another Republican party stalwart, director of institutional integrity at the Bank, responsible for an anti-corruption drive, despite protests of staff associations.
As the US conservatives have arrived, several heavyweights have left, including Robert Danino, the bank’s senior counsel, and Maarten de Jong, who was replaced by Folsom. The Bank’s network for environmentally and socially sustainable development has been folded into the infrastructure department after the departure of its former head, Ian Johnson.
Johannes Linn, visiting fellow at the Brookings Institution, who under Wolfensohn worked as the Bank’s vice-president (Europe and Central Asia), told Emerging Markets that he could understand why Wolfowitz surrounded himself with a “palace guard” in a first, transitional, phase of management – but urged that he now work directly with the senior managers at both vice-president and managing director level.
“It has yet to be demonstrated that Wolfowitz knows how to run a big institution,” Linn says. “It’s understandable that he works with a small group of trusted advisers to find his way into the institution. But, looking forward, he’ll have to establish trust with his senior managers, and not work through advisers who communicate with managers, and even communicate with clients over the heads of managers. That is lethal.”
Linn also expresses concern that no replacement had yet been named for Jemal-ud-din Kassum, who stepped down in December last year from his post as vice-president (East Asia and Pacific). (Jeffrey Gutman was made acting vice-president.)
Wolfowitz also announced the appointment of former Spanish foreign minister Ana Palacio as senior vice-president and general counsel of the Bank. The appointment of Palacio, who as foreign minister in the pro-US administration of Jose Maria Aznar was a prominent supporter of the war in Iraq, added another “big name” to Wolfowitz’s “inner cabinet” but also reinforced the image of a man who does not feel comfortable with the professional staff at the Bank.
Dennis de Tray, who in February left the Bank after 22 years in a series of senior posts there and at the IMF, told Emerging Markets: “Were I at the Bank these days, I would be concerned that the senior management team has relatively little hands-on experience of development.”
Friction between the “second tier” of management and Wolfowitz’s leadership was “the predictable outcome of bringing in a management team which does not have a development background”, says de Tray, now vice-president at the Center for Global Development (CGD). The rift could be healed “provided people listen and learn”.
But a year’s goodwill has been used up, and among some within and outside the Bank, the discussion focuses on whether Wolfowitz is “up to the job” of managing the Bank at all. The Bush administration simply wanted him out of his former position as deputy defence secretary and found him a berth as head of the World Bank, say some critics, and so the administration has also had to provide him with a suitable number of close aides to prop up his regime.
Corruption
In policy terms, Wolfowitz’s anti-corruption drive is one of two high-profile innovations. The other is the Bank’s push on climate change. One official said Wolfowitz was launching into the anti-corruption drive with “missionary zeal” reminiscent of his style at the US defence department, where he allowed neo-conservative ideology, rather than pragmatism, to influence his thinking.
The strategy is outlined in a paper that went for approval to the Bank’s board on 30 April. It urges a strong line against corruption among officials and businessmen in its developing country borrowers, and those that provide them with goods and services under World Bank contracts. Proposals for a voluntary amnesty, under which those who admit to past malpractice and promise to stick to the rules in future, have attracted comment.
An earlier version of the paper, which was not made public but was obtained by Emerging Markets, discusses a possible impact on the Bank’s ability to lend. “Is the Bank prepared to accept a possible slowdown in the pace of lending, at least temporarily, as both Bank and partner countries engage on the issue of corruption risks and anti-corruption action plans at the project level?” it asks. “Is the Bank prepared to accept a low rate of disbursements and a higher level of cancellations due to misprocurement?"
So far, there is no sign of a slowdown in overall lending. Loans by the World Bank rose to $23.6 billion in the year ended June 30, for 279 projects worldwide. This was an increase of $1.3 billion or 6% over the previous year. Of the total, $14 billion was mainly to middle-income countries from the International Bank for Reconstruction and Development and $9.5 billion in the form of zero-interest loans or grants to the poorest countries from the International Development Association.
More recently, however, there have been signs that Wolfowitz means what he says about cutting off funds that finance corruption. The World Bank has asked the Indonesian government to pay back $4.7 million in loans after an internal investigation found that a contractor allegedly paid more than $300,000 in kickbacks. Should the Bank continue taking a hard line on corruption, not just its own future but also the UN Millennium Development Goals could be in jeopardy, as the Bank itself admits.
The controversy surrounding the anti-corruption drive is not limited to its impact on the Bank’s lending portfolio, though. It is being challenged by development economists and NGOs on the grounds that it replaces hard work in the field with rhetoric.
Direction
The final danger for Wolfowitz is that some staffers at the Bank fear that, apart from the anti-corruption drive and his emphasis on Africa, he does not know where he is taking the institution.
Immediately after Wolfowitz’s arrival, some greeted his seemingly “laid-back” style as a welcome contrast to the passionate dedication of the mercurial Wolfensohn to micro-managing the institution. And, if Wolfowitz was slow to announce his plans, that too was seen as a welcome change from his predecessor, who was quick to involve the Bank in everything from poverty reduction to fighting drug abuse and from gender issues to dealing with HIV Aids.
Wolfowitz’s early sorties into Africa and South Asia were also viewed with approval, as was his decision to push the World Bank back towards centre stage on the critical issue of financing infrastructure in the developing world. And, if he appeared to be de-emphasizing some of the myriad functions that the Bank had acquired in the 10 years in which it was headed by Wolfensohn, that too was regarded by some as a welcome development.
But as time has gone by and Wolfowitz has not announced a game plan for the Bank – and as he has distanced himself increasingly from vice-presidents who are used to sharing power with the head of the institution – doubts have mounted about whether in fact he has a coherent plan. Some say he appears intent on “running the Bank into the ground”, while one official suggested to Emerging Markets that he could yet “do a Meltzer”, i.e. cut its functions dramatically as urged some years ago by a commission headed by professor Allan Meltzer.
“The worst position now would be to allow the lack of wisdom in the Meltzer report to become the victor,” South African finance minister Trevor Manuel tells Emerging Markets.
Insiders say that he is in danger of losing support in some parts of the world. His relations with the World Bank’s international board of executive directors are not as smooth as could be desired, says one. He was not a popular choice among many Europeans as head of the institution, and one of those to whom President Bush appealed for support in nominating Wolfowitz, then Italian prime minister Sylvio Berlusconi, has now gone, while another, Japanese prime minister Junichiro Koizumi, has also stepped down.
Recently, Wolfowitz has made what appear to be efforts to placate constituencies within and outside the Bank. In June, he named Kathy Sierra, a veteran staffer and vice-president for infrastructure to head also a newly created sustainable development network. He announced that Graeme Wheeler, the Bank’s former treasurer and ex New Zealand treasury official, would oversee Europe and Central Asia, South Asia, Latin America and the Caribbean while Juan Jose Daboub, former finance minister of El Salvador, would become managing director for Africa, the Middle East and North Africa, East Asia and the Pacific.
Only time will tell whether he is able to mend fences with the Bank’s development professionals and take the institution forward. The World Bank declined to comment for this article.