Friday, April 13, 2007

Paul Wolfowitz, corruption, and the World Bank

It appears that Paul Wolfowitz has continued the Bush Administration tradition of appointing cronies to key posts. This time, though, he appears to have advanced the interests of his girlfriend at the World Bank, possibly breaking internal rules. Pressure is mounting for him to be fired.

Wolfowitz is dating Shaha Riza, a Libyan by birth. It appears that she was already an employee at the World Bank. Wolfowitz' intention was to transfer her to a position outside his direct supervision, which is reasonable. The Bank's board has also said that Wolfowitz revealed his relationship to her when he was interviewing for the position, and that he had asked the ethics committee for advice, which was to transfer her.

His actions turned questionable, though, when he gave her a hefty raise without consulting the ethics committee. From a leaked memo: "You should accept immediately her offer to be detailed to an outside insititution of her choosing while retaining Bank salary and benfits ... She has qualified for and should receive a promotion to H level at a mid-point salary level of $180,000 net income ... with annual increases which will approximate 8 per cent." The text comes from an article on the Times, which is linked below.


Wolfowitz was one of the top architects of the disaster in Iraq, and was nominated for the position in 2005 by Bush. It is said, in the Times article, his connections to the Bush administration have caused the World Bank staff to distrust him. They also apparently booed him off stage when he tried to address a staff gathering over the incident. There are also reports that Wolfowitz has got many Bush officials into posts at the World Bank.

The World Bank has already come under fire before Wolfowitz got there. Its remit is to provide finance (loans and grants) and advice to Global South countries for the purposes of development and eliminating poverty. However, it follows a neoliberal economic policy: free trade, liberalization (privatization of state enterprises), and monetism. The Wikipedia article contains a criticism:

"In her book Masters of Illusion: The World Bank and the Poverty of Nations (1996), author Catherine Caufield makes a sharp criticism of the assumptions and structure of the World Bank operation, arguing that at the end it harms southern nations rather than promoting them. In terms of assumption, Caufield first criticizes the highly homogenized and Western recipes of “development” held by the Bank. To the WB, different nations and regions are indistinguishable, and ready to receive the “uniform remedy of development”. The danger of this assumption is that to attain even small portions of success, western approaches to life are adopted and traditional economic structures and values are abandoned. A second assumption is that poor countries cannot modernize without money and advice from abroad. This generates a cycle of indebtedness that with the payment of interest means currently a net transfer from the poor to the rich nations of $1.7 billion yearly.[citation needed]

In terms of the structure of the bank, Caufield criticizes two elements. First, the structure of repayment; the Bank is a lender of foreign currency and demands to be repaid in the same currency. The borrower countries, in order to obtain the currencies to repay the loans, must sell to the rich countries more than they buy from them. However, the rich countries want to be net exporters, not importers. This generates “the transfer problem”, often the only way of repaying loans is to engage in other loans, resulting in an accumulation of debts. Second, she criticizes the high influence of the bank over national sovereignty. As a condition of the credit, the Bank offers advice on how countries should manage their finances, make their laws, provide services, and conduct themselves in the international market. The Bank has great power of persuasion, because if it decides to ostracize a borrower, other major international powers will follow the lead. On top of this, by excessive lending, the Bank has added to its own power and depleted that of its borrowers, generating a blatant inconsistency with its stated mission."

At minimum, then, the World Bank needs a policy review, it needs to be accountable to those it lends to, and it needs to not be strictly bound by free-market ideology. Wolfowitz is most likely not the person to do that, given his actions and his Bush administration ties. And anyway, given his involvement in the Iraq War, he's arguably a war criminal, and should not have been appointed in the first place.

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