World Bank President: Towards an alternative European approach.

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Towards an alternative European approach. As our Washington Source has noted, various articles today feature hints of a possible deal to end the Wolfowitz World Bank crisis. Below I summarise this morning's coverage of the current situation, the potential deals and bargaining chips. But above all I spell out a potential new European proposal which does not involve the US keeping hold of the Bank's top job.

Our proposal
The European Network on Debt and Development, its members and many colleagues across the world have long argued that the Europeans should give up the right to nominate the head of the IMF and should reduce the number of European representatives on both the Bank and the Fund boards. In return the US should give up its right to appoint the head of the Bank and the deputy head of the IMF.

This is clearly the way forward now. The Europeans should make concessions on the IMF, not allow the US to maintain its stranglehold on the Bank's top job. These changes are by no means sufficient, but certainly necessary if the Bank and Fund are to have any chance of giving an impression of genuine multilateralism and even-handedness.

The current situation
Firstly, the board committee has delivered a guilty verdict but not delivered a sentence. Reuters' Lesley Wroughton quotes a Bank board source saying "There is no unanimity over how this should be resolved, which is why the ad hoc committee has left it to the board".

Secondly, most Europeans want Wolfowitz to go and want to use this opportunity to release the World Bank's top job from the clutches of the US administration. Our readers will love the following extract from Weisman's New York Times piece "the overwhelming sentiment in Europe, as expressed in editorials, political commentaries and even web logs, was that European governments should never again let the United States pick the president of the World Bank all by itself". Even web logs!

Thirdly, it is still uncertain whether a decision on Wolfowitz will be determined through board consensus or a vote. But either way the officials serving on the Bank's board will have to look to their capitals for instructions on such a delicate matter. Weisman's Herald Tribune piece summarises the situation in key governments as follows:
The Bush administration has repeatedly backed Wolfowitz, but President George W. Bush and Paulson have also called for the completion of the bank's internal review process. Now that that is done, the administration is likely to face renewed pressure. European and American officials say that Paulson has said that the bank process must be respected before the United States is pushed into a position on Wolfowitz. Several European officials said they believed that Paulson was in favor of Wolfowitz leaving, but that Bush and Vice President Dick Cheney were insisting on standing up for him.
Chancellor Angela Merkel of Germany favors Wolfowitz's resignation, people familiar with her thinking say, but is also eager to avoid a confrontation with Bush. But as chief of the European Union, she is said to feel obliged to reflect European views, put forth in the European Parliament's call last month for Wolfowitz to resign.
Prime Minister Tony Blair of Britain, due to step down as soon as this summer, has stood by Bush, but his presumed successor, Gordon Brown, the chancellor of the exchequer, has tangled with Wolfowitz on some bank policies.
European officials say that the Netherlands and the Nordic countries have been most critical of Wolfowitz.

The main deal scenarios.

Scenario 1. Wolfowitz goes quietly, without official censure, and the US government is allowed to appoint his successor without a fuss.
IHT: "What I'm hearing from colleagues is, 'Let's not push the Americans too hard,' " said a senior European official involved in policy on the bank. "We want to avoid a split between the United States and its European allies. We're willing to say: 'O.K., you find a capable American to run this institution and we can live with that.' "

Scenario 2. Wolfowitz refuses to leave of his own accord and has to be voted out. The Europeans challenge the unwritten gentlemans' agreement that allows the US to appoint the World Bank president and a new process has to be found.
NYT: A senior European official said that Europeans have informally told Treasury Secretary Henry M. Paulson Jr. that many of their governments, some of whom asked for the custom to be discarded in 2005, would now renew their demand, especially if Mr. Wolfowitz is forced out by a vote of the bank board.

The bargaining chips and arguments.
For the US:
- threatening our man in the Bank is like threatening the US government. The Administration, Congress, etc will turn against those who wield the knife against Wolfowitz.
- US funding for the Bank is unreliable at the best of times and would be even less likely if the US man is shamed and ousted.
- many in the US don't care about multilateral institutions, including the World Bank and so don't mind if the Bank suffers collateral damage if this crisis drags on.
- European governments are over-represented in terms of voting power and numbers of directors at both the Bank and Fund: this should be slimmed down to take account of Europe's share in the global economy and increasing joint European Union cooperation on economic and foreign policies.

For the Europeans:
- Wolfowitz has been found to have done wrong and both he and the US government said they would respect the outcome of the board process.
- Europeans warned the US government that Wolfowitz would be a bad choice for World Bank president, they were right and the US should learn from this and open up the choice.
- European governments collectively have double the US voting power on the board of the Bank.
- European governments provide over half of the funding for the World Bank's IDA arm, which has just started a replenishment round.
- European governments have the traditional right to appoint the head of the IMF.
- The US government is the only one with veto power on the board of the IMF.

Some Europeans have been stepping up the pressure by saying that "they have begun signaling their intention of aiding African countries and other poor nations through their own development agencies, rather than through the World Bank".

There are certainly more elements to be added to this mix, but again it seems clear to me that the Europeans have a strong position, plus right on their side. They should not compromise on the World Bank president selection process but should offer a grand deal involving US compromises on the governance of the Bank and European ones on the governance of the Fund. Not only on the leadership but also on broader governance and representation questions at both institutions. Including, of course, a clean-out of any senior Wolfowitz appointees who have acted wrongly or over-politically while at the Bank. Further transparency of Bank decisions will certainly also be required.

Other kinds of deals would look short-termist and opportunistic by comparison.

This comment can be reprinted in other blogs and newsletters as long as it is attributed to Alex Wilks and linked to this original post.

Alex Wilks ~ May 08, 2007

Comments

Fine proposals, Alex. But I can't summon up the optimism you seem to have found (if indeed it is optimism to try to reform the Bank). This whole episode, from the nomination of Wolfowitz to this pathetic end-game, is another example of how the illusion of “multilateralism” is maintained in the age of GW Bush. He does something outrageous, and then more, and then more. But Europe and the rest of the world dare not exercise any of the levers of multilateralism that have been elaborated over the last six decades. For the greatest risk is that the big bully won’t play by the rules when they do, and then the illusion would be shattered altogether.

The sad thing is that Europe will probably not take the sort of steps Alex describes, even when the circumstances are so blatant and in a realm (the WB) which the US, especially Bush, doesn't much care about. Even in this case, Europe is loathe to risk puncturing the multilateral illusion. Perhaps the risk seems high during the most egregiously dangerous administration the U.S. is likely to provide for a long time (but then again I thought we'd never see worse than Reagan). The trouble is, Europe also chooses not to test its strength during moderate regimes like Clinton’s (since the system is "working"). Recall that in 2000, Clinton and Larry Summers did not hesitate to "veto" Western Europe's first selection for IMF Managing Director (Caio Koch-Weser).

Soren Ambrose ~ May 08, 2007, 11:21 AM

I like the idea that the US picks a *qualified* replacement (if they know one when they see one) to finish the three years of that horrible man's term, and that's it. From here on out, the selection of the head of the WB and IMF are done transparently and without regard to nationality.

A further crisis now over who gets to pick the successor will only paralyze the Bank even more, we need to get today's mess in the rear view mirror quickly and go back to work before the institution is toe-tagged. The question of the selection mechanism is important, but if it's slugged out now, on top of the current situation, the ship is sunk.

I also believe anyone who really thinks it possible to take politics out of the equation, and have the Board pick the best qualified person through a completely transparent process, without any thought to nationality and without any deal-making, is delusional and needs to seek medical attention. But removing the selection from one government or one region is certainly a step in the right direction and should be done. After we have a new President.

IFC staffer ~ May 08, 2007, 02:04 PM

Hmmm. I'm with Alex, so far as he goes. But I would recommend thinking this thing through far more deeply.

First, the multilateral scenario seems much more likely to play out if Wolfowitz hangs in there for another two years.

For one thing that would allow the threats of non-replenishment of the IDA and of competitor banks (which I like) to start to cut in (this Asia Dev Bank mission debate is really interesting!) For another, there could well be a complete Democratic Party takeover of the levers of power in Washington; Dems like multilateral. And for a third, PW would be diminished and largely sidelined while the Board and permanent staff would move more to front and center again.

Second, it seems vital for the grand rethink to play out over two years, so that it builds proper depth and is not simply reflexive. Presently the Bank is falling between these two stools below, and should be vastly more comfortable and more of a success picking just one option and really going for it.

#1: Essentially a capital financing and seeding mechanism - a bank in the real sense - with the recipient countries themselves taking on all but a tiny fraction of the staff work required to make the loans work. In this scenario, the big funders probably should remain the big voters, so that the risks are taken and the resources flow.

#2 Essentially a global knowledge transfer mechanism, with the emphasis fully on systems transfer and enhancement, staff training, and the putting together of investment packages (bankability) for others in the private sector to fund. In this scenario, full multilateralism would seem to be the name of the game at all levels.

UNDP was essentially set up to do #2 but has never gained the centripetal force to carry along with it all the powers in the countries and all the powers in the UN development system. So #2 would be most viable if UNDP and the Bank combined.

And BOTH options would be more viable if the Bank moved from Washington (a bad choice 50 years ago, and a worse one now) to New York City. Under #1 to be near Wall Street, and under #2 to be near the heart of the UN system. Either way, the UN system as a whole would gain immeasurably.

Oh and move the IMF to Geneva. You'll like it there guys. Promise.

Peter Quennell ~ May 08, 2007, 02:12 PM

- First things first: get rid of the rotten fish!

- Next: let Graeme Wheeler continue as interim president until the annual meetings this Fall.

- Then: implement a complete overhaul of the redundant multilateral and regional institutions--and have a few lean, keen, and clean specialized agencies until those fade away by necessity. [Easier said than done; nonetheless, seeking excellence is better than going for perfection].

Blue-Ribbon Wearer ~ May 08, 2007, 02:36 PM

Peter suggests moving the Bank to NYC. If you're going to bother packing all those boxes, it should go further than 200 miles; it should go to the Global South. Maybe Tunis? The African Development Bank has scouted it out, and dissent isn't allowed there (or maybe just strongly discouraged), so the annual meetings could be more relaxed. Or maybe someplace that has proved they're willing to keep out the riffraff -- Singapore?

Soren Ambrose ~ May 08, 2007, 02:36 PM

One of the most hysterically misguided posts I have ever seen.

The reason Europe does not head the Bank is because that is the arrangement they made to run IMF. In both cases, they profit from the arrangement because the United States provides the vast majority of funds for each organization, and power is shared accordingly.

The proposal that Europe, which is historically the cheapest group of nations on the planet, will suddenly assist Africa, a continent they destroyed, can only be met with a jaundiced eye. What are they going to provide in reality? Three Euros and a pat on the back? Will they horse trade for mineral rights in exchange for funding? Will their companies be paying off dictators so that they can be allowed to strip the countries they assist bare? Way to help the poor, folks.

Get real, Alex. The reality is that these organizations need the United States far more than the opposite. Any real attempt to eliminate American presence from the World Bank will be met with a firestorm. America, which the last time I checked is the most generous nation on Earth, could, in reality, finance its own aid system in Africa (worldwide if they liked), but that would also correspondingly harm European countries and their own corporate interests. If America pulls up stakes, the cushy little system that has created the presently dysfunctional group of coffee drinkers on 18th Street would end, and the United States would only gain from the freed up office space. Europe would be the real losers in this deal, but maybe they are used to it by now.

World Bank Wonk ~ May 08, 2007, 03:46 PM

This discussion indicates that we are at a standstill. We all understand and acknowledge the problems but the proposed solutions are:

a) an obvious first step (get rid of the "gentleman's agreements" that determine the heads of the IMF and the Bank)
b) ignore the obvious first step to get rid of Wolfowitz in the short term, then address deeper issues later (Wheeler to do the short term honors)
c) Rethink multilateralism and the World Bank's place in the world (one proposal to let the U.S. do its own thing, another to rethink the game with UNDP playing a more central part)

Fine. Each of these proposals has its merits, no doubt. But what about a fourth option? I see the fourth option as acknowledging that the institution has outlived its usefulness (if it ever had any), allowing it to die a natural death, and for governments that want to talk about aid and development to look to new institutions altogether. Norway may be thinking along these lines. More interestingly, Venezuela, Argentina and Brazil may be thinking along these lines with the Bank of the South proposals.

Getting back to the institution, the question is who will be play the Lord Mountbatten (the last British viceroy to India) to the World Bank? How will such a person be selected? I don't have a good answer for this, as I've never thought of how an empire should dismantle itself. But it's a question worth asking.

Sameer Dossani ~ May 08, 2007, 04:31 PM

Are people really under some illusion that bilateral aid from either the US or European donors works better? Ever take a look at the proportion of that aid that is tied, and that goes to finance their own nationals or corporations? Ever asked the recipient countries which sources of financing they find most useful? The answer's probably different in different places, but the easy conclusion that by definition it has to be better than the World Bank is probably not true, in my opinion. There's also the unfortunate tendency for politics to get tied up in aid decisions - as with the US and family planning, though there are many other less publicized examples.

As for the notion the World Bank should be more like UNDP, well, that probably wouldn't be a popular idea in the countries I'm familiar with. While the UN money comes as grants, it's with a hefty required counterpart contribution covering a very top-heavy bureacracy with far too many international staff posted locally, a portion of whose salaries have to be borne by those poor countries, if they want the "free" money. I've yet to work in a country that would prefer the UN funds to IDA funds, or that is all that thrilled with 5 different (and conflicting) bilateral, say, education, initiatives, working at cross-purposes at times, often with competing demands on already limited country capacity.

We may have lots to criticize the World Bank for, but some realism in the alternatives would be helpful.

Anonymous ~ May 08, 2007, 04:44 PM

I have one question -- who is paying Bob Bennett? By the end of this, Wolfie is bound to run up a legal bill of between $75,000 and $150,000 -- the Bank had better not be asked to pay this from its administrative budget.

Anonymous ~ May 08, 2007, 04:58 PM

Sameer, I think your 4th option is the least realistic yet.

Kill the bank. Uhm, yeah, sounds like a splendid idea. Ok, what about the outstanding debt owed to the group's institutions, by both governments and private sector entities? What about IFC's equity book? What about the hundreds of programs supported and run by the group's institutions? What about the 13,000 or so of us who would suddenly be unemployed (we're not all fat cats slumming it)? Just how do you really expect to unwind the institution without causing huge disruptions that have the exact opposite effect of development?

And more importantly, do you really think that individual government's development efforts will be more efficient, more effective and less influenced by politics? Venezuela? Come on!

Let's focus instead on realistic, practical, attainable solutions. The Bank sure as hell ain't perfect, but let's try to make it better instead of killing it all together.

IFC staffer ~ May 08, 2007, 05:00 PM

IFC staffer, perhaps we should agree to disagree. While most bilateral aid is as bad as anything else out there, the Banco del Sur initiative sounds promising. But maybe that's because it's not a reality as yet. See http://www.just-international.org/article.cfm?newsid=20002184 for some more details (not many).

The issues you raise in the first paragraph are precisely those that would be dealt with by someone charged with de-commissioning the thing. And let's not pretend that these proposals are coming out of the blue. Almost every macro assessment of World Bank lending since 1998 provides fodder for the idea that you'd have more development if you dropped dollar bills over the countries in question. And the IMF assessments are even worse. The IFC should probably be the first to go. Gold mines and luxury hotels are not development.

And with all due respect to you and your colleagues, an employment strategy is not a justification for the continued existence of the institutions.

These institutions are dinosaurs. They were never intended to exist forever, and if we keep saying "let's fix the failed model that we have" we demonstrate our lack of creativity. Meaningful, bottom up solutions to development do not start with Banks in Washington.

Sameer Dossani ~ May 08, 2007, 05:13 PM

What is the next play?
Who were the candidates last time? Some american names were
Sen. (No evolution) Brownback, M. (Massage only) Tobias. Cannot be left to Bush's judgement to decide.

Qualified American

Stan Fischer for President

(Do they also want him to replace Olmert?)

Whatnow? ~ May 08, 2007, 06:21 PM

If Karl Rove really want to be brilliant, he would choose Hillary Clinton to be the next World Bank President.

If she accepts, they take out the best chance for the democrats to win the Presidency in 2008.

If she refuses, there would be a move by internationalist democrats to draft her and distract her from the campaign for 2 or 3 months during the critical run-up to the nomination.

The other part of this is that she would probably make a damn good President, if you consider how good a job she has done as a senator.

Having her as Bank President would also soothe the path to the Bank getting fully funded from a skeptical congress.

Hillary, being herself, would be loath to give up a shot at a job that virtually gives her tenure and possibly 2 or 3 terms (15 years), nearly twice what the Presidency of the US would give her.

She would be torn.

While she is torn, her campaign goes nowhere.

Neat, isn't it?

None ~ May 08, 2007, 06:36 PM

Soren at various points: very interesting insights on the multi-polar model which looks to be emerging anyway without, even too much, ah, massaging down of the unipolar model.

Wonk at 3:46: ah, dont your wrong facts kinda undercut your biff-bam-pows? "Europe, which is historically the cheapest group of nations on the planet:" No, European countries have per-capita aid rates as high as anyone's. "America, which the last time I checked is the most generous nation on Earth". No, the US has one of the lowest, plus the US makes a net profit out of the UN because of the high DC and NYC and US-generally spending. I dont want it to pick up its ball and head off; merely to note that the action is spread around.

Anonymous at 4:44: "As for the notion the World Bank should be more like UNDP" The notion was actually that the Bank do properly what UNDP cannot, and I'd agree with you on the muddle right now. The system-enhancement task, the real guts of development, is not being handled particularly well by anyone. Development might be 30 years ahead of where it is now if it was.

Peter Quennell ~ May 08, 2007, 08:46 PM

Peter:

The per capita argument rears its ugly head.

I'm talking sheer dollars/pounds/euros. Your argument takes in the size of the economy, it does not reflect a look at economic size of donations. Using your scenario, Luxembourg does quite well. Cambodia, however, does not see much of a profit from their donation.

Thus, in terms of actual donations, the United States wins hand down. Further, if the United States were simply left on its own devices without the burden of supporting defunct multi-national organizations with a hand in the till from other nations, you may perhaps be shocked at just how much that aid can be ramped up.

You see, Americans generally don't trust the ethics of people receiving customary pay-outs as a matter of course.

As for the alleged "profit" earned from having the UN in New York, I can readily assure you that having that office space on the open market and an increase in corrresponding jobs that increase the local, state and federal tax base of Manhattan would dwarf the tiny amount generated by the UN and its delegation. The same thing applies for Washington, DC. If the World Bank were to vanish, and the space they are occupying be freed for constructive use, the Federal Government will crack champagne in celebration. Think of the giddiness of not having Chinese operatives spying on you right next to the White House!! Just the cost on overtime savings to follow their World Bank delegation from place to place would be so very worth it.

Thus, the United States really gets no benefit from having prime real estate filled by multinational organizations. The benefits, as we all know, is a level playing field when these organizations bid projects to companies. Having the Europeans make a power play to end the American presence within the World Bank takes even that benefit away, leaving the United States with a choice to leave or stay.

In that situation, I would vote aye for withdrawal. The coffee drinking minions of 18th Street can get their back massages in the lobby of a small building in Jakarata if they like.

WB Wonk

World Bank Wonk ~ May 08, 2007, 10:08 PM

If the railroading of Wolfie is successful, President Bush should
appoint John Bolton as President of the Bank. What a disgrace this
whole episode is... a European witchhunt against a brilliant, honorable
man!

Andrew ~ May 09, 2007, 01:31 AM

Andrew: Don't have any doubt that there is more than a small dose of anti-semitism at work in this whole affair.

World Bank Wonk ~ May 09, 2007, 03:45 AM

... Anti-Semitism isn't going to work Wonk. Despite the fact that PW isn't even religious; his religion has nothing to do with following the ethical procedures and rules laid down at the WB. What is festering at the WB is anti-PW. Why should one person --- simply because he is the president be allowed to commit crimes that he enforces others to abide? PW cannot choose to ignore the rules simply because he finds them inconvenient. Nor does he have the right to monopolize the WB as if it's his own personal financial portfolio. Stop defending the indefensible. Anti-Semitism is a very serious problem that your absurd allegations have managed to undermine.

LDP ~ May 09, 2007, 06:51 AM

Sameer, I'll be glad to agree to disagree with you, because clearly we aren't going to agree. I don't want to derail this comment thread, but if you'll allow me:

- do you have anything legitimate on Bank of the South? Because if all you've got is pieces prominently featuring the views of Lyndon LaRouche, well, good luck with that.

- I didn't say the WB should continue to exist just as an employment scheme. I was using that as an example of the "kill the Bank" view generally lacking nuance.

- Even if, for the sake of argument, we accept that winding down the Bank is the right thing to do, do you really expect a consensus among the member governments to be agreed to do exactly that? Again, you are dreaming.

- We do a hell of a lot more at IFC than gold mines and hotels. We are certainly not perfect, but thanks not to insult me and my colleagues. And if your pie in the sky dream of a world free of multilaterals ever succeeds, do everyone a favor and make sure IFC is the last to go. And not to save my job.

IFC staffer ~ May 09, 2007, 09:08 AM

I am not too sure if somebody noticed that it is now down to US, Japan, and Canada supporting Wolfowitz.

A fallout of this will be the whole incident damaging Japan and Canada's standing as effective members of the international community.

While Canada's standing has been in steep decline since the 1970s, Japan is the surprise casualty in that it had been gradually increasing its influence in international organizations up until now. At first, it was via the checkbook, and then, via the work they have done to gradually bring Japan back to becoming a normal country despite their failure to have a sincere apology for the war accepted by other nations, or to pay reparations that approach some acceptable level to their victims.

Perhaps the biggest damage done to Japan is their aspirations for a UN security council seat. While this bid has been tenuous at best, the Wolfowitz affair have sharply damaged Japan's credibility as an international actor that is prepared to stand up to the US.

A bit of independence from the US by both Japan and Canada (taken in such a way with limited political costs like an abstention in the coming vote of the Board, or a few choice critical statements about Wolfowitz), would go a long way toward limiting the damage to the credibility of both countries.

Is anyone from Canada or Japan listening?

None ~ May 09, 2007, 03:44 PM

IFC Staffer: thanks for your replies and it's fine to continue this discussion I think. Let me respond to your queries one by one:

1) Wish I had more substance on the Banco del Sur proposals. Colleagues of mine are in talks with Venezueal, Bolivia and Ecuador to try and understand the proposals better. As yet, there's nothing.

2) I still say that's not a very good argument for its continued existence.

3) Latin American governments are already pulling out. The current IDA negotiations are interesting because some governments (Norway) are arguing for pulling out of the Bank (albeit slowly) and finding an alternative vehicle. Germany has also been responsive to these arguments. If Wolfowitz stays, it could mean a speeding up of Europe pulling out of the Bank.

4) While the IFC does more than extractives and service, 10 middle income countries account for more than half of its lending portfolio. Over 80% of its investments are in two sectors (energy and transportation) with marginal (if any) poverty alleviation implications, and all of its Oil Gas and Mining work is in violation of the Extractive Industries Review recommendations.

Happy to discuss this further. My father was at IFC for 25 years primarily in Oil Gas and Mining, so I know it from a few different view points. Feel free to contact me off thread to continue the discussion.

Sameer Dossani ~ May 09, 2007, 04:36 PM

LDP: How amusingly European. Obtuse ramblings that satisfy no one and accomplish nothing.

Your breathren have made no bones about the fact that they deem neo-conservatism, and it supporter in Paul Wolfowitz, an extension of Ziomism. The reason PW is being attacked comes from the fact that he is identified with this particular movement. Your argument is fallacious and intellectually dishonest, but honesty has never been noted as a cardinal trait of WB Staff.

The remainder of your post is likewise erroneous. PW made a full statement to the ethics board in telling them of his relationship in this case. He was cleared until the Stalinistic Show Trial was called by the Trustees, mysteriously right after the launching of VDP (Coincidence? I think not). Further, while I note that you seem to think the rules are so very "important," I think it reeks of hypocricy when the rules of the Bank, from leeks to anti-american internal bulletin board postings to confidential information being trumped on this very site , have been broken wholesale by the Bank's own staff. Give me a break.

Defending the indefensible you say? I will take my position over the lynching attitude of your brethren withinin the organization and their anti-american babblings any day of the week.

World Bank Wonk ~ May 09, 2007, 04:44 PM

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