# Posted 6:58 PM by Ariel David Adesnik  

WHERE ARE THEY NOW? (PAUL WOLFOWITZ EDITION): Just yesterday I was thinking to myself that we haven't heard much from the former Deputy Secretary of Defense since he became president of the World Bank. Well, ask and ye shall shalt receive; the current issue of the New Yorker has a profile of Wolfowitz entitled "The Next Crusade".

No surprise, Wolfowitz is a bit controversial at the Bank. But is it because he is shaking up an lethargic bureaucracy or because he is a unilateralist and ideologue by nature? The New Yorker profile lets the advocates of both arguments have their say. It is also worth considering whether controversy is the natural baseline for a new president with new ideas. According to one Wolfowitz ally,

“If you had interviewed people at this stage in Jim Wolfensohn’s tenure, you would have concluded he was the Devil incarnate.”

Wolfensohn was the previous president of the bank. (Maybe the next two presidents will have surnames with the syllable "lamb".)

Wolfowitz's signature issue at the bank has been fighting corruption by governments who borrow from the bank. According to many Bank-watchers, its employees have a long history of measuring success in terms of how much funding goes out the door. Thus, there tends to be minimal concern about how much of that funding winds up in the pockets of corrupt officials, rather than the hands of the poor.

At times, Wolfowitz's approach to fighting corruption and other abuses has come across as heavy-handed. In May 2005,

The government of Uzbekistan had violently suppressed an uprising in the city of Andijan, in which as many as seven hundred people, including women and children, were killed. In July, Islam A. Karimov, Uzbekistan’s dictatorial ruler, ordered the United States to remove its troops and aircraft from the Uzbek base it had been using to support the military campaign in Afghanistan. Around the same time, the Uzbek government expelled a number of Western nongovernmental organizations.

Since joining the World Bank, in 1992, Uzbekistan had received more than five hundred million dollars in loans, mostly for rural water and health projects. In September, 2005, Wolfowitz withdrew an assistance package for Uzbekistan that was about to be presented to the bank’s board for approval. “It came out of the blue,” Dennis de Tray, who was country director for central Asia at the time, told me. “I got a call while I was on vacation and was told that he just did it. He didn’t even talk to the regional vice-president. We were all pretty shell-shocked.”

Wolfowitz told me that his action had nothing to do with military bases or the U.S. government. “Nobody was instructing me to get out of Uzbekistan,” he said. “My one concern, pure and simple, was that, given the human-rights violations, we couldn’t have any confidence in what was happening to our money.”

Now, cooperating with subordinates is never a bad thing in and of itself. But isn't a bit disturbing that an assistance package made it so far through the approval process right after such a horrific massacre? Although the Bank's employees may have been "shell-shocked" about Wolfowitz's sudden intervention from above, doesn't their surprise also say something about strong expectations that the massacre could be safely ignored?

Now, there are some fairly influential voices in the development community who believe that the Banks should focus on fighting poverty, without getting entangled in the issues of corruption and governance:

On September 13th [2006], six days before the Singapore meeting, Hilary Benn, the British Secretary of State for International Development, announced that the United Kingdom was withholding from the World Bank a fifty-million-pound payment, to protest the conditions the bank attached to aid. In a speech in London, Benn objected to Wolfowitz’s actions on corruption: “Where problems arise, some people argue that we should suspend our aid or withdraw it completely. I don’t agree. Why should a child be denied education? Why should a mother be denied healthcare? Or an H.I.V.-positive person AIDS treatment, just because someone or something in their government is corrupt?”

The answer to such questions, of course, is that the best way to provide a child with education or her mother with healthcare is not to wink at the corrupt officials who pocket a percentage of the health and education finds. The more you wink, the more the corrupt officials are willing to steal from the poor.

But if you confront the corrupt officials, you may (emphasis on may) be able to ensure that World Bank funds benefits their intended recipients. And worse comes to worst, you shift that funding to some other country that is willing to channel more of it to the needy. Ultimately, the bank has limited funds, which should be spent (or lent) where they can do the most good.

Now, it is worth pointing out that corruption, even widespread corruption, doesn't necessarily prevent economic development:

A number of economists criticize Wolfowitz for exaggerating the role that corruption plays in retarding economic growth. “There are a lot of countries that we know perfectly well are corrupt but which have done very well economically,” John Williamson, a senior fellow at the Peterson Institute for International Economics, said. “Suharto’s Indonesia is an example.” (Wolfowitz was Ambassador to Indonesia from 1986 to 1989.) Joseph Stiglitz, who served as the World Bank’s chief economist from 1997 to 2000, and later won a Nobel Prize, said, “China has had an impressive record of growth and poverty reduction, and yet by many measures it does not score well on corruption.”

It is true that both China and Indonesia have grown considerably in spite of pervasive corruption. What I'd be curious about, however, is whether World Bank projects damaged by lender states' corruption actually contribute to national development. Apparently, this point is at the heart of a compromise between Wolfowitz and the rest of the Bank when it comes to corruption:

Last month, Wolfowitz presented to the board a revised version of his anti-corruption paper, in which he made several concessions. While reserving for the bank’s management the right to suspend projects where graft was suspected, the paper asserted that the bank should remain engaged in countries with serious corruption problems and should consider suspending lending to a particular country only in “exceptional” circumstances. “Don’t make the poor pay twice,” the paper said. Wolfowitz also agreed to consult more closely with the board, which unanimously approved the paper, and to seek its support before trying to suspend lending to individual countries.

That seems about right to me. Priority number one should be cleaning up corruption that directly affects World Bank programs. That is tough enough, given the Bank's traditional resistance to addressing the issue. If Wolfowitz can get that much done, his tenure might be considered a success.

Of course, there is also the issue of corruption within the Bank itself. Some employees have insisted that Wolfowitz is a hypocrite in this regard:

The board of directors’ ethics committee took the view that [Wolfowitz's long-time girlfriend and Bank employee Shaha ALi] Riza should be transferred to a position outside his supervision. Wolfowitz asked that she be allowed to maintain her job at [with the Middle East & North Africa bureau] and to work with him as necessary, offering to recuse himself from any decisions concerning her pay and work conditions. “It really gave a bad impression, especially for somebody who was making a big issue of good governance,” a former senior official at the bank said. “The president is supposed to set an example to everybody, and yet here he wanted to have his girlfriend working with him, which is flatly prohibited under bank rules.”

Ultimately, Riza was seconded to the State Department. To compensate her for the disruption of her career at the bank, she was promoted to the managerial level, and she has received two pay raises, bringing her salary to a hundred and ninety-three thousand dollars—more than Secretary of State Condoleezza Rice makes. “The staff are very upset,” Alison Cave, the chairman of the World Bank Staff Group Association, said, explaining that the raises amounted to special treatment that violated established bank guidelines. Kevin Kellems told me that Wolfowitz had no involvement in Riza’s promotion or pay raises. “All arrangements concerning Shaha Ali Riza were made at the direction of the board of directors,” he said.

It seems like Wolfowitz could've handled that one better, although it would be a major stretch to call it corruption unless Wolfowitz actually pushed for Riza to get an unmerited raise.

Looking at the big picture, I'm glad that Wolfowitz had made corruption a priority and is challenging the Bank to live up to his standards. I think that leadership from the top is the only way to get the Bank to take the issue seriously. Wolfowitz's predecessor took some critical first steps in that direction, but the fight against corruption has only just begun.

Labels: Paul Wolfowitz, World Bank

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