More Problems After Wolfowitz

The World Bank will have to respond to pressure to reform its leadership selection process and redefine its mission

by Richard S. Dunham

It's not just about Paul Wolfowitz.

With the chief architect of the Iraq war's turbulent reign at the World Bank ending on June 30, the global-development institution must face fundamental questions about its future—if it has one.

The controversy over Wolfowitz's role in securing a lucrative pay package for his girlfriend has overshadowed other, more substantial challenges at the institution. Debates are ongoing over recent bank presidents' top-down management style, the institution's mission in a world awash in aid organizations, and the "gentleman's agreement" that allows the U.S. President to choose the World Bank leader. There are deep divisions within the bank's governing board about what direction to take. But one thing is certain: Change is coming. In the wake of the Wolfowitz scandal, "it's going to be very difficult to put Humpty Dumpty back together again," says Edwin "Ted" Truman, senior fellow at the Peter G. Peterson Institute for International Economics.

The World Bank board announced Wolfowitz's impending departure late on May 17. President George W. Bush, who had remained publicly loyal to his embattled ally during the month-long controversy, expressed disappointment at recent events. "I regret that it's come to this," Bush told reporters shortly before the widely rumored resignation was made public.

New Rules from Old Hands

The first question that will face the 24-member international board of directors—and the governments they represent—is the process for choosing a new World Bank boss. Since its creation in 1946, the bank has always been run by an American citizen. The first was Eugene Meyer, publisher of The Washington Post. Other notable bank presidents have included former Defense Secretary (and auto executive) Robert McNamara, former Representative Barber Conable (co-author of the Reagan tax cuts), and investment banker James Wolfensohn.

But Bush's 2005 choice of Wolfowitz, a deputy defense secretary and close White House ally, was deeply unpopular in most of the world. Wolfowitz, who had no banking experience, was seen by Europeans as a political patronage pick and an unwelcome reminder of a war that has isolated the U.S. from many of its historical allies. As the Wolfowitz conflict-of-interest saga unfolded, Japan was the only nation on the World Bank board that stood firmly with the U.S. in defense of the embattled chief executive.

Many diplomats and academics are suggesting a radical overhaul of the selection process to make it both transparent and merit-based. A group of 190 economists, development experts, and World Bank veterans created the New Rules for Global Finance Coalition. The group advocates an end to the informal convention that has allowed the U.S. to name the World Bank president while the European governments designate the director of the International Monetary Fund.

A Firm Atlantic Hand

But even supporters of the change acknowledge it is unlikely that both Bush and European Union leaders will give up their 60-year duopoly of power. More likely, they say, is a new system in which international banking officials prepare a list of finalists for the U.S. President, or one in which the U.S. leader sends a list of finalists to the World Bank board, from which it would then select its own leader. "This crisis provides the U.S. an opportunity to lock in a more legitimizing process without necessarily giving up the long-held right to appoint an American," says Nancy Birdsall, president of the Center for Global Development.

The person eventually chosen to lead the World Bank after Wolfowitz will have to repair the damage done by his management style, which was condemned by rank-and-file staff as imperious.