Banking on Wolfowitz

Kavaljit Singh

It is official now. On March 31, 2005, the Executive Directors of World Bank unanimously approved the appointment of Mr. Paul D. Wolfowitz as President of the Bank. Mr. Wolfowitz, an American citizen and currently US Deputy Secretary of Defense, was nominated for the post by the President George Bush in mid-March. As anticipated, two weeks of secret backroom negotiations between the US and Europe cleared the way for Mr. Wolfowitz to preside over the Bank. He is expected to take charge of June 1, 2005 when the term of current President, Mr. James D. Wolfensohn, comes to an on May 31, 2005.

Unlike the IMF, the post of the President of World Bank is an important one as it carries additional responsibilities such as ex-officio President of the International Development Association (IDA) and Chairman of the Board of Directors of the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the Administrative Council of the International Centre for Settlement of Investment Disputes (ICSID).

The appointment of Mr. Wolfowitz as the President of the Bank has raised many eyebrows not only among the anti-World Bank and left circles but also in various academic, policy and political circles which are usually considered to be pro-establishment. Part of the shock and awe has to do with the “hawkish” background of Mr. Wolfowitz. He lacks academic qualification or experience in dealing with the development issues which is the raison d’etre of the Bank. On the contrary, Mr. Wolfowitz is a noted “neocon” in the present American foreign policy establishment and a key architect of the war against Iraq. It has been well documented that Mr. Wolfowitz opposed giving reconstruction contracts to countries which refused to join the US-led war against Iraq. Analysts argue that one qualification which puts Mr. Wolfowitz above other candidates for the job is that he enjoys the trust and confidence of President Bush. But is this qualification enough for heading the multilateral bank which has 182 member-countries?

Undemocratic Process

The appointment of Mr. Wolfowitz cannot be viewed in isolation. It has to be viewed in a wider context under which the US administration aims to use the World Bank and other multilateral institutions as important tools to expand and enforce its unilateral geopolitical agenda. A few weeks back, the US President announced the appointment of Mr. John R. Bolton as the new ambassador to the United Nations (UN). Mr. Bolton, also an eminent “neocon,” does not believe in the rationale of the UN and multilateral regime. As pointed by critics, the present US administration wishes to “infiltrate” multilateral institutions with such people who are diametrically opposed to the idea and spirit of multilateralism and international cooperation.

Apart from the choice of candidate, even more shocking is the process through which Mr. Wolfowitz was appointed to head the Bank. Both the World Bank and IMF follow an archaic tradition under which the US nominates the President of the World Bank while an European heads the IMF. This tradition has been practiced since these institutions were created in the 1940s though the reality of world economy and politics has changed dramatically over the decades. The voting rights of the IMF and the Bank are still governed by the rules framed in 1944. With US holding nearly 17 per cent of votes in the Bank, it can veto any proposal and therefore dominates in Bank’s policy matters. It is important to emphasize here that both the US and Europe do not borrow money from these institutions. The Bank and IMF primarily work in the poor and developing countries which, however, have very little say in the governance of these institutions.

The media has extensively reported how the US conducted the secret negotiations with other developed countries. It has been reported that before formally announcing the nomination of Mr. Wolfowitz, the US President personally sounded the UK and Japan (both key allies in the Iraq war) about his choice. Appallingly, both countries gave their full support to the US’s candidature. Once their approval was taken, intense lobbying was carried out to win over key European countries characterized as the “Old Europe.”

Quid Pro Quo

Initially, Germany and France were not very excited over the nomination of Mr. Wolfowitz. Technically speaking, the European countries could have rejected the candidature of Mr. Wolfowitz as they together own substantial votes at the Bank. By doing so, they could have exposed the anti-democratic process employed by the US in the selection of President of the Bank. But this move would have invited US veto to European candidate for the IMF in the future. After all, US had approved the appointment of Rodrigo Rato of Spain as head of the IMF just a year ago. According to some European NGOs keeping a close eye on these developments, secret back room deals were carried out under which the Europeans would support the US candidature provided Mr. Wolfowitz appoints a new deputy from Europe and the top job of the IFC, the private-sector arm of the Bank, should also go to an European. Further, it is well known that France is eager to see Mr. Pascal Lamy installed as the next Director-General of the World Trade Organization (WTO) and therefore was not interested in antagonizing the US on this issue.

At the same time, I am also disappointed at the deplorable response of several developing countries (particularly India, China and Brazil) which have their own representatives in the Executive Board of the Bank. These governments owe an explanation to their citizens on what grounds they decided to support the appointment of Mr. Wolfowitz. It is well understood that developing countries (individually or collectively) do not enjoy the required voting powers to veto the appointment of Mr. Wolfowitz but at least they should have expressed their reservations through a dissent note. In the recent past, there are several instances in the international policy arena, including Iraq war, when these countries firmly stood against the US policies. By supporting the US nominee, developing countries have lost an important opportunity to initiate a new process (in alliance with civil society and other actors) to democratize the World Bank and the IMF.

Good Governance: A Sham

This sordid episode has emphatically revealed the poor governance norms practiced by a few powerful member-countries in the running of multilateral institutions. If the President of World Bank is selected by such secret and undemocratic means, it becomes imperative for the Bank to follows its own dictum of “good governance” and “institutional building” before preaching it to the poor and developing world.

Undoubtedly, such episodes not just erode the dwindling credibility of the World Bank in the eyes of development community but, more importantly, reinforce popular perception that such institutions have become important instruments in the imperial game plan of the US.