Scandal May Jeopardize World Bank Funds

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By Peter S. Goodman and Krissah Williams
Washington Post Staff Writers
Tuesday, May 8, 2007

The leadership crisis engulfing the World Bank began with talk of favoritism for a girlfriend and ill feeling about the Iraq war. But as the bank's board this week considers the fate of President Paul D. Wolfowitz, the ethics controversy has swelled into a test of who controls the institution and its future relevance in battling global poverty.

The outcome could determine whether governments from Berlin to Buenos Aires would be willing to contribute new funds in support of the bank's mission.

"There's a real danger because of this Wolfowitz stuff that donors are going to find a reason not to give," said Elizabeth Stuart, senior policy adviser for Oxfam International, an anti-poverty group in Washington.

The sense of turmoil surrounding the bank intensified yesterday with the resignation of a senior Wolfowitz aide, Kevin Kellems. Once a key spokesman in helping Wolfowitz deflect criticism, Kellems initially defended the president, telling reporters that "all arrangements" in the substantial pay raise Wolfowitz engineered for his companion had been "made at the direction of the bank's board of directors."

In subsequent weeks, however, as documents were leaked showing that bank officials had not been informed about the size of the raise, Kellems declined to repeat his assertion. He issued a written statement yesterday explaining his departure: "Given the current environment surrounding the leadership of the World Bank group, it is very difficult to be effective."

Kellems previously worked for Wolfowitz as a special adviser at the Pentagon during planning for the Iraq war. He later served as communications director for Vice President Cheney and was one of a handful of senior advisers Wolfowitz brought to the World Bank, provoking complaints among staff that the new president was using the institution to further the Bush administration's agenda.

Yesterday, Wolfowitz reviewed a report written by a bank committee investigating his role in the pay raise for his companion, Shaha Riza, said senior bank officials. In technical language, the report finds that Wolfowitz breached multiple ethics rules, the officials said, but contains no explicit recommendations about what should happen next.

Wolfowitz has until late today to respond. His comments are to be forwarded with the report to the bank's executive board, which could begin deliberating as soon as tomorrow. The 24-member board could censure Wolfowitz, urge him to resign, declare a lack of confidence in his leadership or fire him.

"We've requested additional time," said Wolfowitz's lawyer, Robert S. Bennett. "It's not fair to require him to answer within 48 hours."

Uncertainty is paralyzing the bank, officials said, warning that the longer the leadership crisis continues, the greater the chance it will harm its coffers.

The World Bank president leads a campaign to replenish the International Development Association (IDA), a program that offers grants and low- or no-interest loans to the world's poorest countries. The development fund directs more than half its money to Africa, home to 300 million of the world's poorest people.

Wolfowitz has aimed to raise a fresh $20 billion for the IDA by early next year. The fund has about $10 billion but has reserved that money for loans over the coming year. In seeking replenishment, Wolfowitz must court some of the very governments, notably in Europe, now publicly calling for him to quit.

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© 2007 The Washington Post Company

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