Politics & Policy

Rotten Bank

Why did Paul Wolfowitz resign from the World Bank? If you think it had anything to do with a pay raise for his girlfriend, Shaha Riza, you’ve been led astray by the astonishingly slanted mainstream-media coverage. Riza’s deal was always a red herring, and Wolfowitz, in exchange for his resignation, justifiably demanded that the Bank’s board acknowledge that he had done nothing wrong. After all, he had merely followed the advice of the Bank’s ethics committee in reassigning Riza from the Bank to the State Department, giving her a raise for which she was due, and compensating her for the disruption of her career at the Bank. Last Thursday, the Bank’s board admitted that Wolfowitz had “acted ethically and in good faith in what he believed were the best interests of the institution.”

With the ostensible reason for Wolfowitz’s ouster stripped away, what’s left is the story of a sick body rejecting a healthy transplant. Wolfowitz came to the World Bank to fight corruption in the developing world. But the Bank, according to former program director Dennis de Tray, “is a development institution, not an anti-corruption institution.” Wolfowitz’s moves to cut off corrupt governments from development aid angered the Bank’s bureaucrats, who are primarily concerned with moving money out the door. That, along with his association with the Iraq war, is the real reason the Bank rejected him.

During his tenure at the World Bank, Wolfowitz’s anti-corruption campaign upset Bank officials who had spent a lot of time talking about corruption but never done anything about it. After Congo president Denis Sassou-Nguesso and his entourage ran up hundreds of thousands of dollars in New York hotel bills, Wolfowitz reexamined corruption in Congo and, finding the record unsatisfactory, tried to pull the plug on a planned round of debt relief for that country. The move was applauded by anti-corruption groups such as Publish What You Pay, but the World Bank’s board of directors, led by its European members, objected and eventually forced Wolfowitz to back down. One French official told NPR, “Wolfowitz wanted to change the rules in the middle of the game.”

The game, of course, has been the same since the founding of the World Bank after World War II: to keep the money flowing. The Bank was devised to help reconstruct war-torn Europe, but its mission has morphed into the eradication of world poverty. The Cato Institute’s Ian Vasquez has pointed out that “for the foreign aid establishment, the amount of money moved is still a prominent measure of success.” And yet the World Bank has remarkably little to show for all that investment. For the 42 countries such as Congo that are heavily in debt and cannot pay back their loans, 97 percent of their debt is public or publicly guaranteed. Yet when Wolfowitz demanded that the Bank finally take a hard line against governments whose officials line their pockets with foreign aid, the Bank’s board revolted.

Part of this revolt was motivated by genuine if misguided idealism. Some at the Bank truly feel that subsidizing thieves is an unfortunate but necessary part of getting at least some aid money to poor people. But the concept of mission creep offers a more compelling explanation of these never-ending loans to corrupt governments. The World Bank needs to keep its portfolio growing if its officers are to keep their high, tax-free salaries.

Wolfowitz’s ouster shows how far the World Bank will go to maintain its rotten status quo. Its highest officials will manufacture a smear campaign against an innocent man in order to create a cloud over his head. Then, when the smears are revealed to be bogus, they can demand his resignation on the grounds that the “controversy” has crippled his ability to lead.

If the Bush administration is serious about cleaning up corruption and reforming the World Bank, it needs to start rethinking its financial commitment. Currently, the U.S. holds about 16 percent of the Bank’s shares — more than any other country. It’s time to ask why multilateral aid institutions such as the World Bank are needed at all, when the world is awash with private capital and other nongovernmental sources of lending. Most of the Bank’s loans go to “middle income” countries that have little need for its assistance, such as India and China, with their burgeoning economies. And if the U.S. government must be in the business of making loans and grants to developing countries, certainly American institutions are more capable of investing that money wisely.

We’re under no illusions about the Bush administration’s willingness to withdraw its support for the Bank overnight. But it could start laying the political groundwork for withdrawal by commissioning a panel to investigate corruption at the Bank and evaluate the benefits of America’s continued commitment. In ousting Paul Wolfowitz, the Bank’s officials sent a clear message that what they really want is America’s money, not America’s leadership. Why is such a relationship worth carrying on?


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