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Sebastian Mallaby, Columnist

It Pays for the U.S. to Go to the Bank

By Sebastian Mallaby
Sunday, September 26, 2004; Page B03

At the heart of the Kerry-Bush foreign policy debate lies a disagreement about allies. Sen. John Kerry maintains he could persuade other nations to help more with Iraq; President Bush believes that he has rounded up all who were persuadable. The Democratic nominee's advisers point to the collapse of America's image abroad. Republicans tend to blame this rift on foreign fecklessness. The Democratic camp assigns weight and importance to the multilateral organizations that make up the international system. Republicans flirt with the conceit that we live in a unipolar world -- that the United States is the international system.

There's some truth on both sides, and foreign fecklessness is undoubtedly a problem. But having spent almost two years writing a book about the World Bank, I know that Kerry's side has one thing right: A sophisticated U.S. leader can marshal the international system to advance American interests. Over the past decade, moreover, we've seen one administration -- Bill Clinton's -- that excelled at this art. We've seen another -- the current one -- that has fumbled it repeatedly.



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To understand what this contrast means for America's standing in the world, consider a moment analogous to the one we face today -- a moment when the United States faced a crisis, and our allies were estranged from us. No such analogy can be perfect, to be sure, since nothing quite matches the extraordinary climate since 9/11. Yet there is one crisis that comes quite close: the challenge that the nation faced in 1995 in Bosnia.

Bosnia's war opened a deep rift between the United States and its allies. In the early stages of the conflict, the Europeans took the lead, proudly telling the Americans to stay out of their continent. But as the fighting grew bloodier, and particularly after the massacre of 7,000 civilians in Srebrenica in July 1995, the United States muscled its way in, hitting Serb forces with airstrikes, a tactic that the Europeans had resisted. When the Americans convened peace talks in Dayton, Ohio, in November 1995, transatlantic relations fell to a new low. Richard Holbrooke, the lead U.S. negotiator, sidelined his European counterparts so ruthlessly that even the British delegate exploded at the American "bastards."

How did the Clinton administration react to this breakdown? Part of the answer is that it turned to the World Bank, in a way that came almost naturally. Clinton himself was on good terms with Jim Wolfensohn, the bank's larger-than-life supremo; in August 1995, as the Bosnia crisis boiled, Clinton celebrated his 49th birthday at Wolfensohn's home in Jackson Hole, Wyo. At the Clinton Treasury Department, Deputy Secretary Lawrence Summers had been the World Bank's chief economist. David Lipton, the undersecretary responsible for Treasury's international operations, had worked at the International Monetary Fund, the World Bank's sister institution.

The Clintonites first reached out to the bank at the start of September 1995 -- two months before the Dayton peace talks. Airstrikes on Serb positions had signaled the start of the pressure that would push the parties to the negotiating table, and Lipton had immediately realized that he would need the bank's assistance. He knew exactly how the bank could help: It could be a source of money to finance reconstruction, but it also could provide expertise in infrastructure, micro-finance and all the nuts and bolts of nation building. Just as importantly, he recognized that a reconstruction effort fronted by the World Bank would be more likely than an American-led one to attract international sympathy and money.

The contrast with the subsequent Bush Treasury, which only began talking to the bank after the invasion of Iraq, could not be more revealing. What's more, the Clintonites' early contact paid off. Within a week of Lipton's call, a team of World Bank experts held a meeting in Warsaw to plan reconstruction with Bosnian officials, and in October, when airstrikes forced the warring parties into a ceasefire, the bank immediately led a group of donors into Bosnia. The team landed after dark one evening and headed into town with headlights off in order to avoid snipers. The visitors dined with Bosnia's leaders in the sand-bagged presidency building, where white-gloved waiters served them processed cheese and other relief rations.

Getting the World Bank into Bosnia early arguably made Bosnia's peace possible. In November, the bank's lead Bosnia manager, Christine Wallich, flew from Sarajevo to Wright-Patterson Air Force Base in Dayton to write the economic part of Bosnia's new constitution; she shuttled between the rival delegations, sometimes tracking them down in Packy's All-Sports bar, where the Croats gathered to cheer their hero, Toni Kukoc of the Chicago Bulls, while the Serbs waited to cheer Vlade Divac of the Los Angeles Lakers.

But Wallich's most important contribution was to prevent the Bosnian Muslims from quitting. They doubted American promises that reconstruction would follow a peace deal, but each time negotiations threatened to break down, Lipton and Holbrooke reassured them that the World Bank was there to help. Indeed, Wallich had braved the snipers' bullets in order to plan Bosnia's reconstruction.

After three weeks locked up at the air base, the negotiations appeared deadlocked; Holbrooke scheduled a press conference announcing the talks' collapse. This ultimatum pushed the Serbs and Croats into final concessions; everything now hinged on the Bosnian Muslims' position. With an hour or so to go before the press statement, Holbrooke went to confront Alija Izetbegovic, Bosnia's Muslim president: He could accept the deal and so finish the war, or he could condemn the Dayton talks to failure.

"It is not a just peace," Izetbegovic declared, and Holbrooke's heart was in his mouth. But the yearning for reconstruction, for a return to normalcy after four years, seemed to push Izetbegovic on. "My people need peace," he said slowly. Holbrooke took that for a "yes" and made swiftly for the exit.

Returning to Sarajevo, Izetbegovic sought to explain his final compromise. Among the main benefits of the Dayton accord, he explained, was "a substantial aid package for the reconstruction of Bosnia-Herzegovina." His acceptance of the deal had been balanced on a knife edge, and without the promise of substantial World Bank aid, he might have rejected it.

It is hard to imagine the Bush administration using the bank in this way, but the Clintonites were not yet done with it. Having turned to the institution to secure the peace, they used it to spearhead reconstruction. Much as in Iraq in 2003, the international community would underwrite the peace only if the peace process was internationalized. So the Clinton administration invited the European Union and the World Bank to co-chair a pledging conference.

The first remarkable thing about this conference was that it took place in December, just one month after the Dayton negotiations. Last year, by contrast, the World Bank hosted a similar pledging conference for Iraq, but it was not held until October 2003 -- seven months after the invasion -- because the Bush administration's efforts to marshal the bank's help were belated and clumsy.


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