Wolfowitz Corruption Drive Rattles World Bank

By STEVEN R. WEISMAN

Published: September 14, 2006

WASHINGTON, Sept. 13 — In his first 15 months as president of the World Bank, Paul D. Wolfowitz has made the fight against corruption in poor countries a hallmark issue, waging an aggressive campaign that has led to the suspension of hundreds of millions of dollars in loans and contracts to nations including India, Chad, Kenya, Congo, Ethiopia and Bangladesh.

 

The Straits Times, via Associated Press

Mr. Wolfowitz being greeted at his hotel in Singapore early Wednesday.

It is a new incarnation for Mr. Wolfowitz, a neoconservative intellectual who was a primary architect of the Iraq war during four years as deputy secretary of defense.

At the World Bank, Mr. Wolfowitz, 62, has maintained an assertive but soft-spoken style, saying recently that the bank’s mission was “to send children to school, to help mothers be healthier, to provide jobs for poor people — not to have resources siphoned off into the hands of the corrupt and greedy.”

In recent months, however, his campaign has run into a host of critics, both at the bank and among financial officials outside the United States, who say that developing countries are being threatened with arbitrary punishment in a way that jeopardizes the bank’s longtime mission to reduce poverty.

Few here at the World Bank dispute the idea that corruption is a serious problem, but the rift over Mr. Wolfowitz’s approach has grown deep and bitter, according to more than a dozen bank officials interviewed recently.

The backlash at the bank against Mr. Wolfowitz’s approach centers not on his intentions or goals, but on a widespread fear that countries will be categorized in the future as corrupt or not corrupt, and that lending will be shut off in a selective way.

“Anticorruption efforts are an essential part of development finance,” said Roberto Dañino, a senior vice president of the bank until early this year. “But getting rid of corruption is not a silver bullet. The bank should not overemphasize its anticorruption agenda at the expense of other policies required for development.”

Mr. Wolfowitz acknowledges that his decisions to suspend or delay loans, contracts and debt relief funds for many countries have provoked outcries, but he says that in almost every case, the funds were restored after safeguards were set up.

He has begun firing back at the critics at internal meetings and in public statements. He notes, for example, that the bank’s lending under his leadership actually rose slightly last year, to nearly $23 billion.

Mr. Wolfowitz says he has tried to rebut what he calls the myth that combating fraud is “somehow at odds with development or becomes an excuse not to provide assistance.”

While no one knows how much of the bank’s resources have been improperly diverted, informal estimates range from 10 percent to the 25 percent that Mr. Wolfowitz says went to corrupt cronies and family members of Indonesia’s leadership in the 1990’s.

During the Reagan administration, Mr. Wolfowitz served as assistant secretary of state for East Asia, and, in the Clinton years, as dean of the Johns Hopkins University School of Advanced International Studies.

Some bank officials say that the widespread concern about Mr. Wolfowitz’s approach reflects lingering doubts among many international aid specialists about his selection for the bank post by President Bush.

The doubts center on Mr. Wolfowitz’s role as a leading advocate of the American invasion of Iraq, with many critics contending that his zeal on corruption reminds them of what they say was his messianic but unrealistic faith that installing democracy by force in Iraq, and by other means through the Middle East, would bring stability to the region.

The criticism has been especially sharp among Europeans at the bank, where many officials say that judgments about what constitutes “good governance” could rupture the bank’s delicate relationships with aid recipients, especially if the judgments are based on information gathered from dissidents and other critics in those countries.

“We must not use corruption as an excuse for a massive withdrawal of our help,” a senior French finance official involved in discussions with the bank said. The official was among many who agreed to discuss the internal debate only on condition of anonymity.

In recent months, Mr. Wolfowitz and his aides have been negotiating with skeptical members of the bank’s board of 24 executive directors from around the world on guidelines for handling corruption issues. Several of the meetings have been contentious, participants say.

This week, the board forwarded a draft of the guidelines and policies for approval by the world’s finance ministers at the annual meeting of the World Bank and the International Monetary Fund, which begins Thursday in Singapore. But many officials said they expected the arguments to continue there and into the future.

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Several longtime bank officials say they cannot remember when board members wrangled over the wording of a policy paper with a bank president. At recent meetings, directors demanded that Mr. Wolfowitz agree to a greater role for the board in any future decisions on cutting off aid.

In addition, members forced the deletion of language suggesting that the United Nations’ goal of reducing world poverty 50 percent by 2015 would have to take second place to the bank’s drive against corruption.

Still, Britain and other European and developing countries remain skeptical on what may happen when the document is approved, bank officials said.

“The bank,” a board member said, “should not become a world policeman pointing its moral finger and conditioning everything on whether or not a country is believed to be corrupt. The more the bank goes beyond its old mandate of reducing poverty, the more problems will come up.”

In an interview, Mr. Wolfowitz acknowledged that the idea of drafting a paper on bank corruption policies had been urged on him out of fear that he would punish countries without consulting the board. He said he did not take the criticism as personally directed at him or his record on Iraq.

“I think some of the board members,” Mr. Wolfowitz said, “are legitimately afraid that as soon as you start criticizing, the next thing you’re going to do is wag your finger and say, ‘You’re not going to get money unless you behave.’ That’s not our objective. Our objective is to make the lending go up.”

Past actions taken on behalf of the bank have involved a variety of presumed improprieties. For example, aides to Mr. Wolfowitz said he suspended debt relief talks with Congo because he was dissatisfied with audits of its state oil company. They said he expressed indignation over news reports about extravagant hotel bills incurred by Congo’s president during United Nations General Assembly meetings in New York last September.

The bank has looked at, among other things, accusations of corrupt bidding practices for road projects in Bangladesh, kickbacks to politicians in Argentina and the resignation of high officials in Kenya linked to projects there.

By all accounts, a pivotal moment in Mr. Wolfowitz’s campaign came last year when the bank suspended $800 million in loans for maternal and children’s health in India in response to assertions that illicit payments had been going to officials.

Nancy Boswell, president of Transparency International USA, a nongovernmental monitoring group that strongly supports Mr. Wolfowitz’s efforts on corruption, said, “It sent a tremor through the bank that Wolfowitz was serious, that he was going to ask hard questions, look at the track record of countries and make some changes.”

But many at the bank complained that the action had been taken without consultation, and protests were lodged by top aides to Prime Minister Tony Blair of Britain, bank officials said.

Few would characterize the bank’s 10,000 employees, 70 percent of whom work in Washington, as enthusiastic supporters of the Bush administration. Since taking office, Mr. Wolfowitz has told staff members that he wants to listen to them. He has impressed many with his trips to Africa and advocacy of debt relief for the poorest countries.

But distrust of Mr. Wolfowitz remains high, in part because, according to some, he has not given enough credit to his predecessor, James D. Wolfensohn, who spoke out against corruption and set up the bank’s first investigative unit in the late 1990’s.

When Mr. Wolfowitz arrived, he acknowledged Mr. Wolfensohn’s efforts, but also complained that the fraud unit had more than 300 unresolved cases. He increased its budget nearly 50 percent and appointed a new director. He has also set up a program for companies to disclose bribes they paid in order to avoid sanctions.

Currently, about 330 companies accused of corruption have been barred from bank-financed business or been otherwise penalized. The bank is trying to get nations and other international aid agencies to take similar action.

Mr. Wolfowitz’s management style also grates on some bank officials, with a number of them complaining that he has relied on a small coterie of loyal aides. “He presumes,” said Mr. Dañino, the former bank senior vice president and once prime minister of Peru, “that anyone who opposes him is either incompetent or corrupt.”

But supporters say Mr. Wolfowitz is determined to shake up the bank and was inspired to move on corruption by staff members, especially those posted outside Washington and Europe. They say he has had to battle a mentality that emphasizes loan programs, not crackdowns on corrupt individuals.

“Let’s face it, promotion at the World Bank comes from spending money,’’ said John Githongo, a onetime campaigner against corruption in Kenya who has fled to safety in Britain and is now an adviser to Mr. Wolfowitz. “If you’re in the field, and too many complaints about corruption interrupt the spending, it has an impact on your career trajectory.’’