Multilateral Development Banks

Bigger obstacles ahead for World Bank’s Wolfowitz

Shihoko Goto
World Peace Herald
March 31, 2005
Washington: The confirmation of Paul Wolfowitz as the next president of the World Bank Thursday came as no surprise, and neither were the strong voices vehemently opposing his appointment. But as the deputy Secretary of Defense prepares to head the world’s biggest financial aid agency, Wolfowitz will have far more to grapple with than simply handling criticism about his past record at the Pentagon, particularly as the architect for the U.S. invasion of Iraq, and at the State Department, when he served as ambassador to Indonesia in the late 1980s.

While the 24 board members who represent the World Bank’s 184 member countries agreed to have the neo-conservative policymaker as their next president, details of what was actually said ahead of the board’s vote remains unknown. But his appointment has underlined some of the institution’s inherent weaknesses on the one hand, while it has made clear the need to reform the existing framework for development assistance on the other.

For one, his nomination and confirmation have highlighted the need for the World Bank and indeed other international agencies to be more open and accountable for the way they appoint their leaders. Many critics have pointed out that both the bank and its sister organization, the International Monetary Fund, will be less convincing when they insist on countries to be more transparent, when they themselves remain so opaque in how they choose their heads.

Indeed, Nancy Birdsall of the Center for Global Development and a former World Bank economist argued that one key issue for Wolfowitz to resolve will be to convince the United States that naming his successor will have be conducted in a more widely acceptable manner, and perhaps even consider naming a non-U.S. national for the post.

Tradition has it that the bank’s president is nominated by the U.S. president, while the IMF has always had a European as its leader in return. But even prior to Wolfowitz’s nomination to replace outgoing president James Wolfensohn, that practice of assigning posts based on nationality have come under attack, and hostility towards the practice has only intensified further following President Bush’s announcement of Wolfowitz as his pick for the bank’s presidency.

One representative of a major donor country at the bank agreed that coming up with a way of choosing a leader in a less controversial manner will be a major issue Wolfowitz will have to tackle before his first term expires in five years’ time, but he added that it was “highly unlikely” a non-American would replace him.

But there are a number of other pressing issues confronting the World Bank if it is to continue being supported by the international community as an effective institution achieving what it was set out to do, namely reducing global poverty.

Debt relief for some of the world’s poorest nations, mostly based in Africa, will certainly be one issue that Wolfowitz will have to address, especially as leaders from the world’s richest nations gather in Scotland in June for the annual summit meeting of the Group of Seven industrialized nations. As host of the weekend conference, Prime Minister Tony Blair has already made clear that reducing the debt burden of African countries that are spending more to service their interest payments than to provide basic needs for their citizens. But while Britain and several other European nations call for further debt relief, the United States and Japan, which are the two biggest shareholders in the bank and two of the biggest creditors to developing nations, have argued that the existing scheme for gradual debt reduction is sufficient.

There are other issues too where there is already a divide among donor countries on what the bank should do in the future. One key topic for debate in coming months and even years will be how it allocates its pool of available loans.

Alan Meltzer, an economics professor at Carnegie Mellon University who headed a 2000 Congressional study outlining reforms for the institution to make it more effective, has argued that the bank stop lending money to countries such as China and India which can readily raise money in the international capital markets. Indeed, Japan has already announced it will stop providing concessionary loans to China, and it is likely to be part of a growing group of nations which will be calling for the bank to be more strategic in where it offers its loans.

In 2004, the bank provided $20.1 billion for 245 projects worldwide.

Moreover, Meltzer sided with the Bush administration’s position of calling for the agency to provide more grants that do not need to be paid back to provide basic human needs such as clean water, rather than offering them loans which need to be paid back.

Meanwhile, the bank had come under attack with Wolfensohn at the helm for the past decade as he expanded the agency’s interests beyond its core operations, from preserving cultural heritage to boosting dialogue among various religions.

For now, though, it appears that Wolfowitz is well aware of the delicate role he must play to convince both those in and outside the bank that he is up to the job ahead.

“I understand that I am, putting it mildly, a controversial figure. But I hope as people get to know me better they will understand that I really do believe deeply in the mission of the bank,” Wolfowitz told reporters in Brussels Wednesday shortly after European leaders announced their support for his candidacy. Only time will tell if indeed his words prove true.

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