Monday, April 23, 2007

Scandal threatens World Bank’s role

Scandal threatens World Bank’s role
By Krishna Guha and Eoin Callan in Washington
Copyright The Financial Times Limited 2007
Published: April 22 2007 22:01 | Last updated: April 23 2007 01:46

The independent agency charged with assessing the effectiveness of the World Bank has issued a searing indictment of Paul Wolfowitz’s leadership, warning that the situation at the bank risks causing “irreparable harm to worldwide efforts in poverty reduction and sustainable development”.

In a formal statement seen by the Financial Times, which the bank’s board will consider this week, the Independent Evaluation Group called for “swift changes in management and a concerted effort to restore credibility”.

Pressure on Mr Wolfowitz to resign as the bank’s president intensified on Monday when 42 of its senior former executives called on him to step down in an open letter published in the FT. “There is only one way for Mr Wolfowitz to further the mission of the bank: he must resign,” the letter said.

The call comes as the board prepares to reach judgment on whether Mr Wolfowitz broke bank rules or ethics when he ordered its human resources chief to give his girlfriend, Shaha Riza, a large pay rise as part of a secondment package.

The IEG said that the situation could over time make it more difficult for the bank to raise development funds and recruit staff. It warned that the “the ability of staff – particularly those working in client countries – to carry out daily interactions with clients, as well as the institution’s ability in convening partners, are eroding”.

The statement reflects intense concern within the bank’s country teams in the developing world, where many managers said they were now laughed at when they talked about the need to tackle governance issues.

The IEG highlighted what it claimed were “serious breaches of internal HR policies in certain instances, which creates double standards and impairs the bank’s ability to engage with clients on governance issues”.

It also faulted “an increasing lack of transparency in the application of [the] bank’s development policies, for example in population, climate change, governance and anti-corruption”, and criticised the existence of “parallel lines of authority and bypassing of lines” within the bank.

The board will take the IEG statement seriously. Mr Wolfowitz’s defenders are likely to claim it is not truly independent, because the evaluation group is staffed by World Bank employees on secondment. Yet its chief, Vinod Thomas, has no history of clashing with the bank president. The breadth of opposition to Mr Wolfowitz among people connected to the World Bank is clear from the presence of former top managers of the bank among the letter’s signatories – including Shengman Zhang, number two to Mr Wolfowitz in his first year at the bank, two other former managing directors and 18 former vice-presidents.

The list of signatories contradicts the argument that opposition to Mr Wolfowitz comes only from the left and outside the US. Roughly one-fifth of the signatories are American – matching the proportion of Americans in senior bank jobs – and the list includes free-market advocates such as Peter Woicke and Gerard Caprio.

The former bank bosses say that unless Mr Wolfowitz goes now, the bank’s “effectiveness as a development institution and its credibility as the international community’s trustee of resources for fighting poverty” will be “fatally compromised”.

For the good of the World Bank, Wolfowitz must resign
By "former World Bank staff"
Copyright The Financial Times Limited 2007
Published: April 23 2007 03:00 | Last updated: April 23 2007 03:00
From former World Bank staff.

Sir, We are a group of ex-World Bank Group staff who occupied senior positions in the institution (managing directors, senior vice-presidents, vice-presidents, directors), and write in our personal capacities. Some of us have worked under Paul Wolfowitz, some of us have not, but all of us are watching with great concern the ongoing events at the bank because of their impact on development and the interests of the poor. At a time when fighting poverty remains crucial in building a more hopeful, more balanced and more secure world, the World Bank must remain credible if it is to speak with the moral authority necessary to move the poverty agenda forward.

For the bank to succeed, it must be effective, especially on matters of good governance, which Mr Wolfowitz rightly emphasized as crucial to poverty reduction. What staff objected to was not the principle - which they applauded. Rather it was that the policy was implemented with no consultation, and little transparency or apparent consistency. Now, as a result of a process of broad consultation that he was forced to undertake by the board, Mr Wolfowitz has been able to forge a consensus on how to raise the bar on corruption in a practical way. It is this that can serve as a lasting legacy at the bank.

Mr Wolfowitz says he believes in the mission of the bank and wishes to continue. We believe that he can no longer be an effective leader. He has lost the trust and respect of bank staff at all levels, provoked a rift among senior managers, developed tense relations with the board, damaged his own credibility on good governance - his flagship issue - and alienated some key shareholders at a time when their support is essential for a successful replenishment of the resources needed to help the poorest countries, especially in Africa.

We have taken note of the fact that the ministers who met last weekend in Washington took the unusual step of expressing publicly their great concern about the situation in the bank. And staff and some of our senior colleagues within the bank have advised Mr Wolfowitz that the best course of action for the future of the bank would be for him to step down. This painful, unprecedented action was not a rash conclusion. We support it and salute the courage of our colleagues. Like them, we believe this is a regrettable but essential step to prevent the bank's effectiveness as a development institution, and its credibility as the international community's trustee of resources for fighting poverty, from being fatally compromised. There is only one way for Mr Wolfowitz to further the mission of the bank: he should resign.


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