FT.com - Published: May 17 2007 23:12 | Last updated: May 17 2007 23:12
Wolfowitz bows to pressure and quits World Bank By Krishna Guha and Eoin Callan in Washington
Paul Wolfowitz announced his resignation as president of the World Bank shortly after 6pm on Thursday, bringing to an end a turbulent two-year tenure as chief of the world’s leading development institution.
His decision came after the US administration reluctantly yielded to pressure from European and other governments who insisted that he could not continue as bank president.
This follows the publication of a devastating report Monday into his handling of a secondment package for Shaha Riza, a bank official with whom he was romantically involved.
The report found that Mr Wolfowitz had broken the bank’s code of conduct, three staff rules and the terms of his contract.
In a statement, the board on Thursday accepted Mr Wolfowitz’s claim that he acted in good faith. His resignation will be effective June 30
His resignation while in good health is unprecedented in the history of the bank and marks what is likely to be an enduring shift in the balance of power at the institution, which has traditionally been dominated by the US-nominated president.
On Tuesday night Mr Wolfowitz had made an emotional plea to the bank’s board to clear him of ethics violation charges, but it proved insufficient to keep him in the job. The White House earlier in the day had signalled for the first time that it was prepared to see him go.
The push to drive Mr Wolfowitz out was led by European representatives, but drew wide support from other regions of the world. With Canada accepting that Mr Wolfowitz should go, only Japan remained in the US camp.
The pressure on Mr Wolfowitz to step down has been growing all week following the publication of the report into his conduct. South African finance minister Trevor Manuel on Wednesday joined calls for Mr Wolfowitz’s resignation and a German official told him he would not be welcome at a meeting in Berlin next week.
The report by the investigating panel had asked the bank’s board to consider, in the light of its findings, “whether Mr Wolfowitz will be able to provide the leadership needed to ensure that the bank continues to operate to the fullest extent possible in achieving its mandate”.
It suggested the board should take into account in making this judgment the “damage done to the reputation of the World Bank group and its president, the lack of confidence expressed by internal and external stakeholders in the present leadership, the erosion of operational effectiveness ... and the important strategy and governance challenges the World Bank group is facing”.
Following the release of the panel’s report, 37 of the bank’s 39 country directors sent a letter to the board demanding it “practice what it preaches on governance and accountability”.
The report asked the board to undertake a review of the bank’s governance structures “with the aim of ensuring that it is capable of effectively dealing with the challenges raised for the institution”.
The report’s findings – released by near unanimous demand of the board – had lent momentum to the push for Mr Wolfowitz to resign or be forced out.
It concluded that Mr Wolfowitz broke staff rule 3.01 on professional conduct, rule 5.02 on external service and 6.01 on pay. It stated that the initial pay rise, 8 per cent a year, later rises and presumed additional promotion on Ms Riza’s return to the bank, were excessive and never envisaged by the bank’s ethics committee.
It said Mr Wolfowitz’s attitude evidenced “questionable judgment and a preoccupation with self interest”.
The report also concluded that Mr Wolfowitz violated the terms of his contract, which require him to abide by the bank’s code of conduct.
The situation involving Ms Riza was “not unique,” the report said, and that other members of staff had faced difficult choices in order to comply with rules prohibiting one employee from working under the ultimate authority of another with whom that person was romantically involved.
Mr Wolfowitz’s decision to keep the bank’s top lawyer out of the negotiations on terms and conditions for Ms Riza “was inconsistent with the principle of good governance and concern for the interests of the bank” it said.
“He did not agree with the advice he received about the legal requirements in connection with the conflict of interest, so he stopped seeking advice from the bank’s legal vice-presidency.”
The report dismissed Mr Wolfowitz’s claim that he thought he had been asked by the ethics committee to provide detailed instructions on terms and conditions, saying “the interpretation given by Mr Wolfowitz to the ethics committee’s advice simply turns logic on its head.”
The report noted “with dismay the mis-statements to the press” attributed to one close Wolfowitz aide, and blasted Mr Wolfowitz and his lawyer for engaging in “attacks on the board and on a board process” that was mandated by finance ministers at the Development Committee meeting in April.
It said Mr Wolfowitz’s attitude in general “evidences questionable judgment and a preoccupation with self-interest over institutional best interest”.
Speculation swirled over possible successors to Mr Wolfowitz. Some people close to the administration suggested that Bob Zoellick, the former deputy secretary of state, could be nominated for the job. Other sources speculated that Paul Volcker, the former chairman of the Federal Reserve, could be brought in as an interim president.