World Bank probe reveals strain within

The Baltimore Sun

WASHINGTON -- Two years ago, when Paul Wolfowitz left the Pentagon to lead the World Bank, he was under fire over his role in the Iraq war, but he approached his new job with the same moral fervor and appetite for shaking up the status quo that had marked his tenure at the Defense Department.

Wasting no time, he launched a campaign against corrupt borrowers. He cut off loans to uncooperative countries without consulting other officials. He created ethics police to monitor employees. He even chopped back the bank's traditionally lavish Christmas party.

Now, having sown the wind, Wolfowitz has reaped the whirlwind. The controversy over how his girlfriend landed a good job and huge salary increases has brought to the surface long-submerged but deep-seated resentment from almost every quarter.

"When the match was lit, the fire exploded. The gas was already in the room," said a former Treasury Department official who declined to speak on the record because he continues to have close ties to the bank.

On Friday, with Wolfowitz's job on the line, the Bush administration faced two questions: how hard to fight for him and how much damage to its stature his ouster would cause.

The bank's board of directors continued to say it was pondering the matter. But one clue to how tough the in-fighting was becoming did emerge: a leaked report that European governments had decided to cut off contributions to the bank's loan funds if Wolfowitz did not quit.

Publicly, the White House reiterated its support for the bank chief, but it was not clear how hard it was prepared to push behind the scenes. Wolfowitz is not a U.S. official but was nominated by President Bush; by tradition, the United States - the Bank's largest financial backer - picks its president.

"The president has full confidence in Paul Wolfowitz," White House spokeswoman Dana Perino told reporters. "He's done a remarkable job at the World Bank, where they are working to lift people up out of poverty from around the world. He's apologized for the matter [concerning his girlfriend], and his board is undergoing an internal review.

"And we expect him to remain as World Bank president - he has the president's support," she said.

Tony Fratto, another White House spokesman, said that the U.S. representative on the World Bank's board - Clay Lowery, assistant secretary of the Treasury for International Affairs - "is representing the United States and he knows that President Bush supports President Wolfowitz."

Bush has a record of sticking by embattled appointees, including former Defense secretary Donald H. Rumsfeld, former Treasury Secretary John Snow, and now Attorney General Alberto Gonzales.

Another former Treasury official familiar with relations between the bank and the administration said that because the board of directors operates largely by consensus, the United States exercises substantial influence. But the emphasis on consensus also means that if the board turned against Wolfowitz, he would likely step aside.

"I believe we could block an effort to remove Wolfowitz. That said, if there were an overwhelming mood against him, he would cease trying to stay," the former Treasury official said, speaking on condition of anonymity because he works elsewhere in government and is not authorized to discuss the issue publicly.

The Wolfowitz imbroglio involves one of the most polarizing figures to serve in the Bush administration and one of the most unusual institutions in Washington.

For his part, while at the Pentagon, Wolfowitz bruised feelings among senior military leaders and career bureaucrats because of what they saw as a lack of respect for their expertise and a tendency to disregard opinions outside his own inner circle.

And in Congress, during the run-up to the Iraq invasion, even some Republicans questioned his assertions that Iraqis would welcome U.S. troops as liberators and that the war would end quickly.

As for the World Bank, many members of its multi-national staff resented Wolfowitz's role as an architect of the Iraq war even before he took over. They also resented his efforts to shake up a deeply entrenched bureaucracy that had long operated with little outside supervision.

Career bank officials had strongly held views on how international aid programs should be run, and they were accustomed to salaries and other perks far more lavish than those of American government workers.

The new president challenged the bank staff on both counts, and he did it with a managerial style that added to the resentment, according to sources with close ties to the institution. These sources, like most others, declined to speak on the record because they said they feared reprisals.

The bank staff was especially infuriated by Wolfowitz's decision to create a powerful internal integrity unit to oversee employees' conduct. It cracked down on such things as travel, closely checking whether employees spent extra days on overseas trips at bank expense. It also increased efforts to assure compliance with a rule against staffers accepting gifts worth more than $50.

In addition, many of the bank's experts felt that Wolfowitz and a small group of aides he had brought with him from the Pentagon bypassed them on decisions about specific projects. This approach contrasted sharply with the practice of the previous bank president, James Wolfensohn, who became a staff favorite by consulting closely on decisions and making them feel part of the process.

Perhaps surprisingly, considering how well they are paid by U.S. government standards, many World Bank employees believed they were paid too little.

The World Bank declined to provide Wolfowitz's salary, though published estimates range from a little over $300,000 to $400,000.

According to documents released Friday by the World Bank, Wolfowitz informed bank officials of his relationship with Riza prior to becoming bank president in June 2005. He offered to recuse himself from all personnel decisions related to Riza, but the bank's ethics committee decided that did not go far enough.

"Even with recusal, the issue of 'perception [of a conflict of interest]' remains," according to notes of an ethics committee meeting on June 2, 2005. In July 2005, the ethics committee informed Wolfowitz that the best resolution of the conflict would be for Riza to be reassigned to a job outside the World Bank.

The committee noted that she was a top contender for a promotion and that "the potential disruption of the staff member's career prospect will be recognized by an in situ promotion on the basis of her qualifying record." The promotion came with a salary increase of $50,000, according to the documents.

Riza eventually accepted reassignment to the State Dept. but made clear that she was not happy. "I have now been victimized for agreeing to an arrangement that I have objected to and that I did not believe from the outset was in my best interest," she wrote last April.

Joel Havemann, Maura Reynolds and Paul Richter write for the Los Angeles Times.

An article in yesterday's editions of The Sun about the World Bank omitted the complete name of Shaha Ali Riza, a personal companion of bank president Paul Wolfowitz who was reassigned from a position at the World Bank to one at the State Department.The Sun regrets the error.
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