Bush stance will be critical for Wolfowitz

Midway through last weekend’s meeting of world finance and development ministers in Washington it looked as if Paul Wolfowitz’s strategy of toughing out the Shaha Riza controversy might work, and he could emerge with his prospects of holding on to his job as World Bank president enhanced.
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But after Sunday’s unprecedented statement of “great concern” by the bank’s shareholder governments – including the US – the likelihood that he will see out his full term looks considerably diminished.

Yet the game is far from over. Mr Wolfowitz still retains the personal support of President George W. Bush, who nominated him to the job. European nations, though united in their desire to be rid of Mr Wolfowitz, are not agreed about how to get there.

The statement by ministers was an invitation to Mr Wolfowitz to consider whether he could stay on in the job after revelations that he was personally involved in securing an attractive secondment package for Ms Riza, with whom he has been romantically involved.

Many officials very much hope he will take the problem out of their hands by volunteering to step down. But there is no indication that he will do so. “I intend to stay,” he told reporters on Sunday.

What happens next will depend on three principal actors in this drama: Mr Wolfowitz himself, Europe and the US administration.

Mr Wolfowitz could surprise everyone by standing down at a moment of his own choosing.

If the bank president stays on, he will face hostility from staff and peers and be severely weakened in his dealings with the board.

Moreover, his continued presence will make it difficult for the bank to raise the $28bn (L14bn, €21bn) it needs to replenish the International Development Association, its main lending facility for poor countries. European nations are now talking about withholding funds if he stays.

Mr Wolfowitz is already a liability in fundraising terms in the US, where the Democrats now hold the purse strings in Congress.

If the IDA is threatened, borrowing countries in Africa and elsewhere – which have expressed some support for Mr Wolfowitz – may turn against him.

But people who know Mr Wolfowitz say he is not likely to quit simply because he is widely disliked.

More likely, he will try to wait for the storm inside and outside the bank to abate and trust that institutional inertia will mean that it is soon concentrating once again on its daily anti­poverty work.

He may try to split the coalition against him by offering to sack intensely disliked aides and restructure his personal office, possibly bringing in Lars Thunell, the respected head of the bank’s private-sector arm, as a chief operating officer.

A sincere and far-reaching proposal might just be enough to satisfy Europe, though not the many staff members determined to drive him out. For all their dislike of Mr Wolfowitz, some European nations are worried his departure would start a new debate over whether the US and Europe should split the top jobs at the World Bank and IMF.

But Europe is too heavily invested in the success of the bank to allow Mr Wolfowitz to stick out the remaining three years of his term without radical changes to his presidency.

That would risk continued internal strife of such intensity it could cripple the bank as an institution.

If he does not offer such changes – and his defiant statement to staff on Saturday suggests he will not – Europe will keep stepping up the pressure on him to go.

The big European nations are firm on this, with Britain and Germany taking the lead, and France hanging back largely for tactical ­reasons.

They want to show Mr Bush that this is not a US v Europe political issue but a question of management and corporate governance.

The US position will be critical. It has voiced its “full support” for Mr Wolfowitz and is determined not to let staff protests and newspaper leaks run him out of the bank.

While it is in Mr Bush’s power to stop anyone else from driving Mr Wolfowitz out, it is not in Mr Bush’s gift to give him a manageable institution to run.

If this becomes a domestic political issue – which it need not do, as Mr Wolfowitz is not a member of the administration – the White House will almost certainly refuse to let him go, regardless of the cost to the bank itself. If it does not, and the turmoil at the bank continues unabated, the US will have to decide whether at some point to whisper in Mr Wolfowitz’s ear that the game is up.

Much will rest on the counsel of Hank Paulson, the Treasury secretary, and Condoleezza Rice, the secretary of state.