The World Bank’s controversial new captain

Jun 1st 2005
From The Economist Global Agenda

Paul Wolfowitz has begun his tenure as the World Bank’s tenth president. Will he show more dedication to the policy aims of the Bush administration or the cause of poverty reduction?

ANALYSTS in Washington are still enjoying a lively debate: when George Bush nominated Paul Wolfowitz to head the World Bank, was he being promoted, or “kicked upstairs”? Either way, there will be plenty of nay-sayers arguing that the most important poverty-fighting institution in the world is now in the hands of an ideologue obsessed with spreading democracy in the Middle East. But if Mr Wolfowitz is being shoved aside, they will also wonder if he is so incompetent that even the Bush administration has been forced to recognise it. And if he isn’t being shoved aside, they will ask if his ties to the administration are stronger than his dedication to defeating poverty.

Mr Wolfowitz, who took up his new job on Wednesday June 1st, has been working assiduously to convince his critics that the answer is “none of the above”. His charm offensive includes lunching in the World Bank’s employee cafeteria (the managers and president have their own separate dining rooms) and impressing the decidedly liberal staff with his willingness to listen and learn.
He has also distanced himself from American conservatives who want to overhaul the bank’s lending practices and were hoping, much to the dismay of the bank’s staffers, that he would be a champion for their ideas. He has announced that he will focus on Africa, and scheduled a trip there, to calm fears that he aims to make the bank a policy tool for the Bush administration in Iraq.

But even if Mr Wolfowitz turns out to be what many hope—an able administrator, a committed poverty-fighter, a shrewd diplomat—the task ahead of him is enormous, more daunting even than bringing democracy and peace to Iraq. Despite 60 years of World Bank efforts, more than a billion people currently live on less than $1 a day. While the percentage of the world’s population experiencing such deprivation has fallen since 1980, development has been uneven, with Asia, particularly India and China, accounting for most of the drop. In sub-Saharan Africa, that percentage has actually risen over the past 15 years, to nearly half the population.

During that time, development economists have grown less certain that they know the formula for bringing poor nations into the rich world. Though there is agreement on many necessary ingredients, such as the rule of law, education and a relative lack of corruption, there is little agreement on how to implement this ambitious agenda. Mr Wolfowitz takes the helm of a ship with a clear destination, but no good maps to show the way.

Furthermore, he needs not only to steer the ship, but also to run it, with passengers and crew who have a tendency to mutiny. James Wolfensohn, his predecessor, was frustrated by the bureaucratic and somewhat insular institutional culture, and relations between him and the bank’s staff frequently became poisonous during his periodic attempts to make sweeping changes. Mr Wolfensohn also had difficulty finding the right tack to take with non-governmental organisations (NGOs), which mounted fierce opposition to World Bank projects despite his strenuous attempts to appease them. Critics charge that Mr Wolfensohn scuttled projects with genuine poverty-fighting potential rather than stand up to the politically charged accusations of the NGOs. Mr Wolfowitz will need to find a way to engage them without compromising his charge to fight poverty.

He will also face the chronic political difficulties of many multilateral institutions. The World Bank is highly dependent on rich-world donors to fund its programmes; this makes it vulnerable to political battles both within, and between, its members. A movement afoot among American conservatives would make the bank even more vulnerable: they want it to convert much of its aid to grants, rather than loans, and cut back its lending to middle-income nations that have access to funds on the global capital markets. This would deprive the World Bank of its main sources of independent income, forcing it to go hat in hand to member governments for all its expenses. So far Mr Wolfowitz has offered little support for these ideas, which would make his job much harder, but some worry that he may end up having to accept them.

His own plans thus far are not particularly radical. He wants to increase bank support for infrastructure projects such as roads, bridges and power plants, which have been sidelined in recent years owing to their mixed record of success and fierce opposition from environmentalists. He has also said, to the chagrin of those conservatives, that he would consider steps to make bank loans more attractive to growing middle-income nations. If it works, this could generate more revenue for the bank’s operations in the poorest countries, particularly those in Africa. While there will undoubtedly be opponents of each of these ideas, all in all it is a moderate and sensible start. But it is also where things begin to get tough.

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