IFI governance


Wolfowitz era begins: Realpolitik 1, Democracy 0

1 April 2005

Paul Wolfowitz’ nomination as World Bank president was approved by the board 31 March. The approval was a formality after the controversial architect of the war in Iraq received the support of EU countries at a meeting of ministers in Brussels the previous day. Mr Wolfowitz will take over from departing president James Wolfensohn 1 June.

Observers from across the political spectrum have denounced the selection process. According to a longstanding ‘gentleman’s agreement’, the US is entitled to nominate the president of the World Bank while the Europeans get to choose the head of the IMF. In the week after the Wolfowitz nomination there had been conjecture that European leaders might veto the choice, following the precedent set by the US in vetoing the European choice for head of the Fund in 2000.

What followed however was an unprecedented display of realpolitik. In the UK, Treasury and development officials were reported to be “incandescent” that prime minister Blair had given the go-ahead to the Wolfowitz nomination a month before it was made public. The UK is hoping to have its former development minister Baroness Amos take over the United Nations Development Programme. The French are rumoured to have their eye on the leadership posts at the World Trade Organisation and the UN High Commission on Refugees with Pascal Lamy and Bernard Kouchner the respective candidates. The French along with the Germans will hope to install a national as the next head of the World Bank’s private-sector arm, the IFC. The Germans, along with the Brazilians and the Indians, will hope to gain a security council seat in upcoming negotiations on reform of the UN security council. This calculation, along with fears of US foreign policy reprisals, is what most observers blame for developing country silence on the Wolfowitz nomination.

more failed privatisations, more corporate welfare, more subsidies for big dams and oil pipelines

Executive Directors from the G-11 group of developing countries on the World Bank board met with Wolfowitz 23 March. They raised concerns about “the pursuit of bilateral strategic issues through multilateral fora by some major shareholders.” Mr Wolfowitz responded that he “would not attempt to pursue any political agenda”.

Civil society groups are now pushing shareholder governments to set a board date to discuss reform of the leadership selection process. They are also calling on their representatives to reject a national or regional carveup of any new senior posts, including that of head of the IFC.

Loved by none

In his speech to the European ministers in Brussels, Wolfowitz described himself as a “controversial choice”. Opposition to the nomination was centred on his key role in the war in Iraq. Many believe that his predilection for unilateralism and his support for opaque and ideologically-driven reconstruction efforts bode poorly for the future of the Bank. Brussels-based NGO Eurodad compiled a list of 1650 organisations worldwide outraged by the appointment. Polls conducted by the Financial Times, worldbankpresident.org and the World Bank’s own staff association showed support for Wolfowitz dipping below ten per cent.

A further issue of contention is Wolfowitz’ lack of development experience. Wolfowitz responded to these charges by pointing to his years as US ambassador to Indonesia. This drew countercharges from academics and activists. Professor Jeffrey Winters pointed to Wolfowitz’ key role in privatising and deregulating the Indonesian banking system – reforms blamed by many for the financial crisis of the late nineties. Abdul Hakim Garuda Nusantara, head of the state-sponsored National Human Rights Commission in Indonesia, said that Wolfowitz had been closer than any US ambassador to the Suharto regime, and “never showed interest in issues regarding democratization or respect of human rights”. This view is reinforced by Wolfowitz’ description in 1997 of General Suharto as a “strong and responsible leader”.

Silver lining?

Jubilee Iraq believes Wolfowitz’ support for Iraqi debt cancellation demonstrates a “clear application” of the principles upheld by the international legal doctrine of odious debts – public debt incurred by corrupt regimes without the consent of the people and not for their benefit. The NGO called on Mr. Wolfowitz to make good on his position regarding Iraq and support an odious debt arbitration tribunal for that nation’s debt.

Similar hopes exist that Wolfowitz may take a more principled stance on lending to autocratic regimes. NGOs were disappointed by the failure of the Bank under Wolfensohn to live up to his rhetoric on putting evidence-based poverty reduction first. On the same day that Wolfowitz was confirmed as president, the Bank approved funds for the Nam Theun 2 dam in Lao PDR. Critics argue that, beyond violations of environmental and social policies and dubious economics, there is no evidence to suggest that a regime guilty of numerous human rights violations will use revenue from the project to benefit the poorest.

Overwhelming such hopes are concerns that Wolfowitz will roll back environmental and social safeguards and push an aggressive programme of liberalisation and privatisation. Peter Bosshard of International Rivers Network expects “more failed privatisations, more corporate welfare, more subsidies for big dams and oil pipelines”.

Energy analysts have uncovered a significant conflict of interest. As Bank president, Wolfowitz will lead the International Advisory Monitoring Board, a body which as part of its oversight responsibilities is investigating contracts improperly paid out of the Development Fund for Iraq. Before the war, Wolfowitz authorised a contract to Halliburton without seeking bids from other contractors. According to Cray and Vallette, the Halliburton contract has become “a huge source of controversy with allegations mounting concerning Halliburton’s long series of improprieties in executing it.”