Wolfowitz Apologizes for Role in Staffer's Promotion
By William McQuillen and Christopher Swann
April 12 (Bloomberg) -- World Bank President Paul Wolfowitz apologized for his role in the promotion of a woman with whom he was romantically involved, while the lender's Staff Association demanded he quit.
Wolfowitz told a press conference in Washington today that he's prepared to accept whatever ``remedies'' the bank's board proposes. Minutes later, he addressed a staff gathering in the atrium of the lender's headquarters, where colleagues shouted ``resign, resign.''
The former U.S. deputy secretary of defense has taken responsibility for the temporary transfer of Shaha Riza to the State Department after he arrived at the lender in June 2005. Her move took place under bank rules that forbid one partner to report to another, though Riza got a pay raise that was twice as large as bank rules allow, according to the Staff Association.
Wolfowitz, 63, today said he initially tried to avoid involvement and finally intervened because of the ``legal risk'' associated with an ``involuntarily reassignment'' of a staffer.
``I made a mistake, for which I am sorry,'' he said at the press conference.
The Staff Association, which represents about 13,000 World Bank employees, hasn't called for the resignation of a president before, according to Alison Cave, who heads the group. She is pressing the board to release all documents related to Riza's pay increase and transfer.
`Impossible' to Move Forward
``It seems impossible for this institution to move forward with any sense of purpose under the present leadership, especially in our endeavor to assist governments and their people in improving their own governance,'' Cave said in a statement that she read at today's meeting.
The board's probe of Riza's promotion is overshadowing the semi-annual meeting of the World Bank and the International Monetary Fund. Wolfowitz's press conference opening the meeting was dominated by the issue. He was asked only a handful of questions about the bank's lending program.
Tim Adams, U.S. Treasury undersecretary for international affairs, today declined to speculate about Wolfowitz's future, citing the review by the bank's executive board.
``There is a mechanism in place, and I am going to allow that mechanism to work rather than inject myself into the middle of it,'' Adams, who represents the U.S. as the largest shareholder of the bank, said at a press conference at the Treasury Department.
Effect on Meetings
Ted Truman, a former assistant secretary of the U.S. Treasury between 1998 and 2001, said the controversy will crowd out any other issue at the semi-annual meetings.
``This reflects badly on the institution and on Wolfowitz and will undermine the effectiveness of the Bank,'' Truman said. ``It will make it very hard for Wolfowitz to talk about the issues.''
``I am not sure whether he will survive,'' Truman added.
Riza's promotion came with a pay increase that was more than double the amount allowed by staff rules, according to Cave. She later received an annual increase of 7.5 percent, also larger than rules allow.
Wolfowitz's tenure was already marked by discord. He raised hackles among staff members over plans to beef up the bank's presence in Baghdad, and his drive to fight corruption among the bank's borrowers has prompted concern that aid intended to help the poor might be halted.
The World Bank was founded in 1944 to provide financing for the reconstruction of Europe after World War II, and it has since changed its mission to focus on fighting poverty. It lends about $23 billion a year.
The bank's president is nominated by the White House for a five-year term and must be a U.S. citizen. The IMF's managing director, currently former Spanish finance minister Rodrigo de Rato, has always been a European.
Cave implored the board to launch a ``global merit-based search'' for a new leader.
To contact the reporters on this story: William McQuillen in Washington at bmcquillen at bloomberg.net ; Christopher Swann in Washington at cswann1 at bloomberg.net
Last Updated: April 12, 2007 14:42 EDT
http://www.bloomberg.com/apps/news?pid=20601103&sid=aVHjb1UUX8y4&refer=us
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Paul Wolfowitz: Opening Press Conference at the WB/IMF Spring Meetings 2007, April 12, 2007, Washington, DC
Mr. Hanlon: Good morning, ladies and gentlemen. Welcome, and thank you for joining us this morning. President Wolfowitz will begin with a statement. After that, we will be pleased to take your questions. I would ask you to please identify yourself and your organization, if you could, please. Also, if you could limit it to one question so we could get around the room as much as possible.
This briefing is, of course, on the record. I will now turn to President Wolfowitz.
President Wolfowitz: Thanks, Carl.
Let me start by just saying a few words about the issue that I know is on everyone's mind.
Two years ago, when I came to the Bank, I raised the issue of a potential conflict of interest, and I asked to be recused from the matter. I took the issue to the Ethics Committee of the Board, and after extensive discussions with the Chairman, the Committee's advice was to promote and relocate Ms. Shaha Riza.
I made a good‑faith effort to implement my understanding of that advice, and I did so in order to take responsibility for settling an issue that I believe had the potential to harm this institution. In hindsight, I wish I had trusted my original instincts and kept myself out of the negotiations. I made a mistake for which I am sorry.
But let me also ask for some understanding. Not only was this a painful personal dilemma, but I had to deal with it when I was new to this institution, and I was trying to navigate in uncharted waters. The situation was unprecedented and exceptional. This was an involuntary reassignment, and I believed there was a legal risk to the institution if it was not solved by mutual agreement. I take full responsibility for the details of the agreement, and I did not attempt to hide my actions or to make anyone else responsible.
I met with the Board this morning, and I proposed to them that they establish some mechanism to judge whether the agreement reached was a reasonable outcome. I will accept any remedies they propose.
In the larger scheme of things, we have much more important things to focus on. For people who disagree with the things they associate with me in my previous job, I'm not in my previous job. I'm not working for the U.S. Government. I'm working for this institution and its 185 shareholders. I believe deeply in the mission of this institution, and I have a passion for it. I think the challenge of reducing poverty is of enormous importance, not just to us, but to our children and grandchildren. I think the opportunities in Africa today are potentially historic.
We have really been able to call attention to the progress that's possible in Africa and not just the despair and misery. I think together we have made progress in enabling this institution to respond more effectively and rapidly both in the poorest countries and the middle‑income countries to carry on the fight against poverty.
And I also believe more strongly now than when I came to this job that the world needs this institution, an effective multilateral institution, that can responsibly and credibly manage common funds for common purposes, whether those purposes are to fight poverty or to deal with climate change or to respond to the danger of avian flu, and I ask that I be judged for what I'm doing now and what we could do together, moving forward.
And in that spirit, let me say a little bit about what is on the agenda of the Development Committee. We are going to be focused principally on the Global Monitoring Report, the Aid Architecture Paper, and the Africa Action Plan.
We will also be having an informal discussion, as we usually do in the Development Committee lunch, and three important side events, one to address the issue of Congo River Basin, another to address the challenge of providing water for the poor, and the third to talk about the challenge of recovering stolen assets.
As you're aware, the Bank's key strategy for Africa is the Africa Action Plan. As I said in my earlier remarks, I think this is a moment of historic opportunity for Africa. We are seeing in many parts of the subcontinent remarkable growth. Roughly a third of the countries', nonoil‑producing countries, with roughly a third of the population have been growing at 4 percent or better over the last 10 years‑‑that's a pretty good record‑‑and it's leading to progress in education and health and in closing the gender gap. We are seeing increasing efforts at business reform in no small measure spurred by the Bank's Doing Business Report. And the Bank is helping Africa with the resources to meet its challenges. Our lending levels are achieving record volumes, quality, and, most importantly, innovation.
Our support for Africa comes largely through IDA, the International Development Association. IDA is on track to deliver on its commitments to Africa with lending expected to reach another level this year after last year's record of 4.7 billion, we are looking at numbers 5 billion or higher.
We are doing our part, but it's clear the international community needs to do more to help Africa. There is now real uncertainty about whether the promise of the Gleneagles Summit to double aid to Africa by 2010 will be realized. According to a recent report by the OECD‑DAC, official development assistance last year fell by some 5 percent to 104 billion in 2006.
It would be a tragic mistake if the promises of increased aid were not delivered. Let me just mention to you a couple of the challenges that are identified in the Global Monitoring Report that will be discussed by the Development Committee. To date, according to the Report, there is not a single example of a country case where aid is being sufficiently scaled up to help reach the MDGs‑‑that's the Millennium Development Goals‑‑by 2015. What these countries need is long‑term predictable financing; IDA can provide that.
Another observation - nearly two years after the Gleneagles Summit, the pledges made there and its subsequent broader meetings in 2005 for a substantial increase in new development assistance flows for Africa, we have yet to see evidence of significant new flows that translate into real resources for development programs on the ground.
So, the challenge is very real, and let's not forget, with discussions already underway on replenishing IDA 15, donors need to make good on the promises made at Gleneagles and then at the Annual Meetings of the World Bank and IMF here in the fall of 2005, to compensate IDA dollar‑for‑dollar for the lost debt payments resulting from the HIPC Initiative and the MDRI Initiative and to preserve IDA's capacity to finance programs and projects in the world's poorest countries.
I think this is an important meeting. It's a meeting to focus on the progress that is being made, progress that I think is in no small measure due to improved performance by the developing countries, and to focus on keeping the promises that have been made to help them develop them.
MR. HANLON: Thank you very much, sir.
We will have copies of the President's statement at the end of the news conference at back of the room for you, and we are now prepared to take your questions. Once again, if you could identify yourself and the name of your organization, that would be very helpful.
Yes, Fernando?
Question: Good morning. Fernando Supra Pinto from TVGlobo from Brazil.
If the Board is to decide to remove you, what would be your assessment of this episode in your tenure at the World Bank?
President Wolfowitz: The Board is deliberating on this issue now, and I'm not going to preempt the deliberations by speculating about where they're coming out.
I told you my view of the issue, and I told you what I proposed to them, and we will have to see what they have to say.
Question: Alicia Salgado from the El Financiero newspaper in Mexico.
Could you please tell us a little bit more about the middle‑income strategies that is going to present this week to the Development Committee, because Mexico is one of the countries that has a very low stand‑by with the financial lines with the World Bank, and there are some requests about the‑‑to change division with these countries, especially Mexico, Brazil, Chile, whatever. Could you respond about it.
President Wolfowitz: It includes a broad range of changes to how we do business; first of all, the design to lower the transaction costs of working with the World Bank, to make lending or borrowing from us, something that could take place more rapidly that is more competitive with the other sources of financing in countries like Mexico have access to in the commercial markets.
Secondly, to recognizing that for sophisticated countries like Mexico with a lot of access to commercial markets and other sources of funding, the interest in borrowing from the Bank stems perhaps more from the kind of knowledge and expertise that comes with that lending, and we need to figure out how to properly value those two different aspects of what we do. But also we need to move forward to keep up with the rapidly increasing sophistication of clients like Mexico. You can't‑‑the information that might have been useful to Mexico or China or Brazil 20 years ago is not very useful to them now.
I think where we bring the greatest value is in, most of all, in programs targeted at poverty reduction, but I also saw in my visit to Mexico places where we were working with Mexico on things like housing finance in the private sector through the IFC, where we were working on some significant innovations in governance, including procurement reforms, and assisting with the really quite remarkable Freedom of Information procedures that Mexico had established.
And then finally, I think in Mexico, as in many other places, the Bank brings a great deal of expertise in the area generally of sustainable development, which means, most of all‑‑I mean, there are many aspects to it, but most of all in what I saw there, expertise about managing the environment in the context of development.
So, then one final thing, and it's particularly applicable in the case of Mexico, but this is part of the general middle‑income strategy, is to figure out how we can help countries develop their own systems for audit and control so that they don't have to go through sometimes what are viewed as our cumbersome systems, and that doesn't mean substituting less adequate safeguards for the safeguards of the World Bank. It means helping countries develop their own safeguards to a level where ours could be significantly simplified. And there is a lot of interest in that, and it would not only make it easier to deal with the World Bank, but I think it would have‑‑and there is some concrete examples, I know, in Mexico, where it has improved the procurement process not only on World Bank money but on Mexican Government money.
Question: Corbit Daily from Thompson Financial News.
President Wolfowitz, in your opening statement, you said you asked that you be judged by what you are doing now. I was wondering what you would say to your critics who say that you are turning the World Bank into something‑‑an arm of the U.S. administration and providing‑‑playing favorites with the development aid.
President Wolfowitz: I have yet to see any evidence on that point, frankly. I mean, we are doing development aid as we did it before I came here. The IDA money is allocated on the basis of this performance‑based allocation system, which is‑‑some people might say it's too rigid, but it's a very objective system. We are not playing favorites with anybody. We are trying to put money where it does the greatest good for poverty reduction and trying to move it more rapidly and with better safeguards around it.
I think strengthening the emphasis that was started, really, under my predecessor, recognizing that governance and corruption are part of the agenda, and frankly I think the United States and other developed countries have obligations to do more, not just to point the finger at poor countries, and say that corruption is their problem if the people who are stealing assets from those countries are putting them in American banks or European banks or other assets in the developed world, the developed world needs to help them recover it.
Then, finally‑‑and I think I have been very clear about this‑‑all the development assistance we may provide and all the things countries will do on their own to increase output are going to be of greatly reduced benefit to the poor if they don't have places to sell their goods, and I think the agricultural subsidies in particular in the United States as well as Europe and Japan are really a scandal‑‑I have said so‑‑I think they benefit the rich at the expense of the poor, and that's not an American position. It's my position as the head of an institution whose main responsibility is to the poor.
Question: As someone coming from the former Soviet Union, I'm mostly interested in that region. For me, a case in point of what the previous reporter asked you was Uzbekistan. There was a shift from full support when Uzbekistan was considered to be a major ally of the United States in the region, and there was a denial of support after it stopped being a major ally in the region. People charged that it came from your direct instructions. What do you respond to that?
President Wolfowitz: The issue had nothing to do with Uzbekistan 's relationship with the United States; and in my previous job, I must say that Uzbekistan was seen, and I'm sure is still seen, as of enormous strategic importance.
The question for the World Bank is, given the substantial human rights violations that were taking place prior to that decision, we had real concerns about whether we could get transparency about where our money was going, because transparency does require that people be reasonably free to say what's going on, and our goal is not to disengage from Uzbekistan. Our goal is to find ways to engage and to engage more effectively.
And I could tell you that it had nothing to do whatsoever with the state of Uzbekistan 's relations with the United States.
Question: Jose Esquivel from Proceso Magazine of Mexico.
My question has to do with corruption. As a leader of the fight on corruption and the right of favoring people, my question to you is: What will be your advice on the Finance Minister of Mexico, who you know very well, who hasn't been responding clearly to the Mexican people and to the Mexican media if he's going to investigate his predecessors or who has been involved in -this scandal during his tenure he favored many people and many people close to him, especially families close to people who were working close to him. What will be your advice to the Mexican‑‑and many people in poor countries believe that leaders never say something when the finance minister is involved in an investigation, and that's not fair. What do you say to the Mexican people?
President Wolfowitz: I'm not familiar with the case that you're describing, so I can't comment on the details. I do think that a general solid principle is, if there is a problem, be transparent about it, disclose everything you know, and figure out what are the appropriate remedies. I think it really is true that transparency is the key, absolute key, here to good governance and in fighting corruption.
Question: I have two questions: Do you have any plans to resign from your job?
And secondly, the Board that is deliberating today, is its deliberations focused on removing you from your job, or is it looking at a wider range of remedies, and what are those remedies, please?
President Wolfowitz: As I said in answer to a previous question, I'm not going to speculate on what the Board is going to decide. I made it clear to them, and I made it clear to you, that I was trying to make a judgment about what was reasonable in a difficult and unprecedented circumstance. And if they come to some way of concluding whether or not‑‑whether it is reasonable, I will abide by whatever remedies are available to deal with that.
This was not in any way an attempt to protect personal interest. It was an attempt to resolve an issue that I thought had real risk for the institution, and my real regret is I did not more forcefully keep myself out of it.
Let me make clear, I never volunteered to get involved in it.
Question: Simon Cox of The Economist.
Were you afraid that Ms. Riza would sue the institution if she wasn't happy with the deal she would get?
President Wolfowitz: I'm sorry?
Question: You mentioned the legal risk to the institution. You were afraid that Ms. Riza would sue the World Bank if she did not get the deal that she was happy with?
President Wolfowitz: I think I would be speculating and I would be prejudging what the Board needs to determine or find a mechanism to determine, but when you're in uncharted waters and you're imposing an involuntary solution on staff members, there are risks; there is just no question. There are risks.
Question: Jean Paul with Reuters News Agency.
If I understand correctly, the topic of energy was removed from the official agenda and may be discussed during the supper, and I was wondering why that's the case, and whether it has anything to do with an inability to reach consensus on how to deal with this issue?
President Wolfowitz: No, it wasn't removed from the agenda. One of the problems is there is not enough time to discuss all of the important issues that are present at these meetings. I believe we have something like seven different background papers, some of which are there to be read because there isn't time to discuss them.
So, we have a rather intensive debate about what could go on the agenda, formal agenda, of the Development Committee. There are only two agenda items, but we managed to squeeze in a third paper, which is the Aid Architecture Paper. It's a very important paper that came out of the IDA Deputies Committee, and let me just give you two sentences on that because it's a really critical issue. It emphasizes the point that while the appearance of many new donors including what are called "vertical funds" that focus on specific diseases or specific programs, big foundations, new emerging donors, all of that is a good thing, but it puts a challenge on the development system as a whole and particularly on the weakest countries for how to sustain the basic systems in the country like the ones that train teachers. It's very important, as we are trying to do, to increase primary school enrollment, but if you do that without increasing teacher training, then that's a problem. So, the Aid Architecture Paper identifies those kind of issues.
And the Africa Action Plan, of course, is the other item.
Then we get to this informal, you mentioned, dinner; it's lunch. It's a formal meeting of the Development Ministers, which is very informal, without staff. And there are two main topics on that agenda, and one of them is the clean energy framework. We had clean energy on the formal agenda in the fall, and it may well come up again this coming fall. It's a major focus of the Bank's work, and it might well be the principal focus of the Bank 10 or 15 years from now. We are seeing a situation where, on the one hand, the poorest countries who are our principal customers are, frankly, often the ones most affected by climate change, partly because many of them are tropically located, but also just because if you are living on the edge already, a little disturbance pushes you over the edge.
So, just figuring out how to help them adapt is crucial, but also when it comes to what is called "mitigation," which is how to reduce carbon emissions, clearly one of the ways‑‑a major way, or maybe the major way, that that's going to happen is for investments to come from the developed countries, from the rich countries, to help the poor countries reduce carbon emissions either reducing deforestation or increasing their dependence on fossil fuels or increasing the efficiency with which they use fossil fuels. It's a big subject. It's not lack of interest. It's not lack of consensus, although there are some tough issues here. Everyone agrees that's important, and that work is going to go forward.
I think the discussion at the lunch should finally help that work go forward with a clear understanding of what the Ministers feel are the outstanding issues.
Question: Barry Wood, Voice of America.
Mr. Wolfowitz, hasn't the Bank lost in Africa the initiative on HIV/AIDS to the Gates Foundation? And what is your assessment of the impact of the Gates Foundation approach on Bank operations?
President Wolfowitz: You know, the idea that we have lost the initiative to somebody else is‑‑kind of suggests that we are competing with Microsoft. We are not. We are in the same business together, and the fact that the Gates Foundation is out in the front with HIV/AIDS is a wonderful thing, and one of the things it does tend to mean is countries want to see the Bank fill some of the needs not filled by the Gates Foundation. Actually, we are also looking at some, I think, very successful examples of cooperation, for example, in fighting malaria. We have some joint efforts with the Gates Foundation in Zambia.
So, this goes back to the point of aid architecture and the fact these new donors are filling very important gaps, which is something to be welcomed. I think one of the very important places for this institution to focus when it comes to health is that‑‑sustaining the overall health systems of countries. You know, if you focus too much on a single disease, you may provide a lot of AIDS medicines, but you may not have the electricity to run the refrigerators to keep those medicines, or you may not have the other medicines for other diseases that keep people healthier and, therefore, less susceptible to the diseases which are usually the approximate cause of death from AIDS debilitation.
So, no, I don't view it as a problem at all. I view it as part of this aid architecture problem of how do we‑‑where do we put our comparative advantage and where do we put our money.
Question: Scheherazade Daneshkhu, the Financial Times.
Mr. Wolfowitz, you have made good governance the flagship issue of your presidency at the World Bank, and given your statement this morning, what do you say to people who say that‑‑who won't see these as personal mistakes but as a serious error of corporate governance?
And in that regard, do you not feel that whatever the Board decides that your credibility and ability to continue in this job is compromised?
President Wolfowitz: Let's see what the Board decides before I decide on what the Board decides, but I could tell you about my own actions. I didn't volunteer to get involved in this. I didn't get involved for any personal reasons but rather to resolve something that I think posed institutional risk. I didn't hide anything that I did, and as I said, I'm prepared to accept any remedies that the Board wants to propose.
Question: Mr. Wolfowitz, could you address the complaints of World Bank staff members, professional staff, who say that you have shielded yourself too much behind a small group of advisors‑‑the name Robin Cleveland seems to come up a lot, sometimes also Suzanne Folsom‑‑and not consulted with or not listened to the counsel of veteran professional staff people?
President Wolfowitz: Let me say, first of all, the part of that that I will accept as having some validity, which is I came in here as I think any new CEO would, needing some people that I was familiar with already. I brought in two, sometimes it sounds like it's an army of Bush administration retreads. It was Robin Cleveland and Kevin Kellems. Suzanne Folsom was here already with Mr. Wolfenson, and she's running her own part of the shop. She's not in my inner office in any sense whatsoever.
But I have heard concerns from Board members, from staff members, that that's fine in the beginning, but the role of my two advisors needs to be more structured, and I actually agree with that, and I'm going to find a way to put them in the structure better.
So, having said that, let me also say I think this criticism is a little bit stale. I mean, I brought in a New Zealander and an El Salvadoran as Managing Directors, neither of whom I knew before I came here. I recruited from outside an Italian CFO, a Swedish Executive Vice President of the IFC, a Jordanian Senior Vice President for External Affairs whom I didn't know before, a former Spanish Foreign Minister as General Counsel.
Then two more that I'm particularly pleased about more recently, two African women, former Minister of Health from Botswana and former Assistant Director General‑WHO, Joy Phumaphi, who is our new Vice President for Human Development‑‑a fantastic woman‑‑and coming soon as a new Vice President for Africa, the Nigerian Minister of Education, Obiageli Ezekwesili.
And almost all of these people are not only obviously not from the Bush administration‑‑most of them are people I didn't know before‑‑but most importantly to me, I have gotten to know numbers of terrific staff. I recruited a Chief of Staff, Leticia Obeng, who is a bank professional from Ghana. Her deputy, Auguste Kwame, another terrific bank staffer from Ivory Coast. And I could go on and on. It starts to get a little boring, but what to me is sort of surprising is I could still be surrounded by these two people who keep all of those other folks away from me. It's just not true.
But I accept the point as I said in the beginning, which is it's time to get the structure clear and the lines question.
Mr. Hanlon: A final question, at the back of the room.
Question: Kathy Shockwood, National Public Radio.
Will there be any changes, or have there been any changes, in the Bank's policies on reproductive health and family planning?
President Wolfowitz: Absolutely not. I have seen rumors about that. Let me make it very clear. Our policy hasn't changed. We have a new health strategy going to the Board which I think makes it very clear, and I want to make it clear, personally: I think reproductive health is absolutely crucial to what I have said over and over again is a major part of the development agenda, which is making sure that women can contribute equally with men; and healthy women, women who married at a reasonable age or had reasonable numbers of children, they could keep healthy, not only take better care of their girl children, they take better care of their boy children and contribute better to society as a whole. It is a development issue. The policy of this institution, I think, was very clear before I got here, and will remain very clear.
Mr. Hanlon: Thank you very much, ladies and gentlemen. Once again, there will be a statement at the back of the room for you as you leave. Thank you.