Ending Battle, Wolfowitz Resigns From World Bank

By Peter S. Goodman
Washington Post Staff Writer
Friday, May 18, 2007

World Bank President Paul D. Wolfowitz resigned yesterday, effective June 30, yielding to demands from governments around the world that he leave to end the ethics controversy that has consumed the institution.

Wolfowitz's resignation, negotiated in recent days with the bank's executive board, closed the leadership crisis that has essentially paralyzed the institution for almost two months. It preempted what had been a growing likelihood that the board would reprimand or fire him after a committee report found that he broke ethics rules in awarding a substantial raise to his girlfriend.

Wolfowitz and his attorney, Robert S. Bennett, extracted a measure of the exoneration they had demanded before he would resign. In a statement released last night, the board conceded that "a number of mistakes were made by a number of individuals in handling the matter under consideration," and the bank would need to improve its ethical procedures. The board declared that Wolfowitz "assured us that he acted ethically and in good faith in what he believed were the best interests of the institution, and we accept that."

The statement added: "We are grateful to Mr. Wolfowitz for his service at the bank. Much has been achieved in the last two years."

That language was agreed upon only after fractious debate among board members, with some, particularly European representatives, dismayed that it appeared to hand Wolfowitz a victory. In the end, however, they swallowed the language as the price of getting Wolfowitz to quit.

Wolfowitz has argued that he sought to resolve an obvious conflict of interest by transferring his longtime companion, Shaha Riza, to another job at the State Department so that he could avoid supervising her, while increasing her pay as compensation for the career disruption.

Staff members described a celebratory mood inside the World Bank's headquarters near the White House, with people embracing, singing songs and hoisting flutes of Champagne.

The ethics scandal that ultimately brought down Wolfowitz was merely the latest in a long list of his infractions in the eyes of many staff members, who accused Wolfowitz of insulating himself behind tyrannical aides, disregarding the counsel of veteran bank officers and running the bank as an adjunct of the Bush administration.

The news that Wolfowitz was leaving, however, did not fully heal the international rifts that have emerged with the leadership crisis. His exit set off a new struggle to determine who will run the bank between now and his official departure date at the end of June.

According to bank and Bush administration sources briefed on the negotiations, the White House on Wednesday demanded that Wolfowitz be allowed to stay for three months, fearing that otherwise an acting president would be put in place from within the bank. That could threaten the traditional American prerogative to select the head of the institution.

"They don't want to lose control," a bank official said.

Most of the board, and particularly the Europeans, wanted Wolfowitz to leave immediately, asserting that he has lost the trust of the staff. The administration ultimately settled for a compromise, the June 30 departure date, fearing that otherwise a caretaker president might be inserted by the board over American wishes.

In rushing to secure Wolfowitz's resignation by last night, the board deferred the nettlesome question of what happens in the interim, a subject it plans to take up today.

Under a tradition dating to the creation of the World Bank in the 1940s, the U.S. president nominates its head, even though that rule is contained nowhere in the bank's governing statutes. Under the same unwritten agreement, Europe gets to pick the head of the bank's affiliate institution, the International Monetary Fund. For years, reformers have questioned this system, asserting that the heads of such important global institutions should be selected on merit. Many academics and pressure groups are demanding that the end of Wolfowitz mark the beginning of a new selection procedure.

With its chosen head of the bank forced out by an ethics scandal, the Bush administration moved yesterday to reassert the traditional U.S. role, with Treasury Secretary Henry M. Paulson Jr. declaring he would "move quickly to help the president identify a nominee to lead the World Bank going forward."

But several senior bank officials said last night that the institution requires an acting president until a new president is in place, dismissing out of hand the suggestion that Wolfowitz could continue to come to work as usual.

"He will be treated like a leper," said an official, who requested anonymity so as to speak candidly. "No one, certainly not heads of agencies, are going to want to meet with him. He instantly becomes irrelevant to the bank from this point on."

A bank official briefed by board members said the board would today issue a second statement asserting that Wolfowitz is immediately barred from making personnel and policy decisions, assuaging the fears of some that he might otherwise fire those who have rallied against him. But in a nod to the interests of the Bush administration, the board will assert that Wolfowitz is to stay on officially in his post and will not go on administrative leave, as many staff members had hoped.

In recent weeks, as the investigating committee heard testimony from bank officials, as staff openly campaigned for his ouster, and as political leaders from Berlin to Johannesburg called for his exit, Wolfowitz resolutely insisted he would stay. He dismissed the movement against him as a "smear campaign."

This week, with the release of a scathing investigating committee report and a strident chorus of calls for his departure, it became clear that Wolfowitz was fighting a battle that could not be won.

European governments were inclined strongly against a decisive vote to fire him, which would have risked an open conflict with the Bush administration. Wolfowitz and his lawyer understood that and factored it into their strategy, at one point on Wednesday daring the board to vote to oust him. That gambit appears to have helped secure the exonerating language.

Until this week, the White House had been resolute in supporting Wolfowitz, who was a primary architect of the Iraq war at the Pentagon before President Bush appointed him to head the World Bank in 2005.

Administration officials, in particular Vice President Cheney, saw the campaign to oust him as a European power play fueled by bitter feelings about Iraq, and as a broader proxy battle against American influence, senior administration officials said.

But as Paulson tried in vain this week to persuade fellow finance ministers to support Wolfowitz, the White House came to recognize that he could not be saved.

"I regret that it's come to this," Bush said yesterday morning at a news conference with outgoing British Prime Minister Tony Blair. "I believe all parties in this matter have acted in good faith."

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