Global Policy Forum

By Frank Hornig and Georg Mascolo

Paul Wolfowitz was once the US president's most important Iraq warrior. Soon he will be heading up the World Bank. Can the hawk from the Pentagon transform himself into a peacemaker? Or will international foreign aid start to function as an extension of American foreign policy?

Paul Wolfowitz made an honest effort. Three weeks ago, he appeared at the World Bank cafeteria, where stir-fried noodles and an Indian curry were on the menu, and waited patiently in line with everyone else. The occasion was the organization's Festival of Cultures, and Wolfowitz found himself mingling with bankers dressed as African dancers. He managed a smile when the Chinese regional office staff began singing the catchy tune "How High the Moon." Wolfowitz didn't even lose his composure when the M.C. introduced him as the next president of the World Bank -- everyone's new boss -- and not a single member of the audience clapped. He had been to the Bank several times in the preceding weeks, apparently to allay the fears of concerned staffers. He also met with ministers of finance and foreign aid worldwide. He even called Bono, the lead singer of rock bank U2, who has been so committed to fighting poverty that he was even briefly considered as a possible choice to head the Bank.

Paul Wolfowitz, the Bush administration's chief neoconservative ideologue who, in his former job as Deputy Secretary of Defense, was responsible for overseeing the so-called "axis of evil," now has a new mission impossible on his hands: the battle against world poverty. It's a campaign in which the lines of conflict are far less clearly drawn than in Iraq. Wolfowitz assumes his post as president of the World Bank on Wednesday. The hawk, it seems, now plans to transform into a dove. He has promised his critics that he will rethink the world's problems and insists he comes with "no political agenda in my pocket."

New directions for an old institution

Wolfowitz's entrance is pushing an institution which has been providing foreign aid to countries in Africa, Asia and Latin America with relatively little fanfare into the limelight. Until recently, the World Bank was able to do its charitable work -- and manage a budget of more than $25 billion -- without causing much strife among its key members -- the United States, Europe and Japan. But this will now change. More than 60 non-governmental organizations (NGOs), from Africa Action to the Nicaragua Medical Alliance, have lodged their protests against Wolfowitz's appointment with US President George W. Bush.

Joseph Stiglitz, a former World Bank chief economist and winner of the Nobel Prize for economics, fears that the Bank will once again become a "hated organization," and that the developed world could face a wave of "street demonstrations and violence." Ministers responsible for foreign aid, like Germany's Heidemarie Wieczorek-Zeul, have warned the World Bank's president-elect against a change of course. European governments have been less than enthusiastic about Wolfowitz's appointment. All are concerned that the US president will turn the development organization into yet another front in his global fight against terrorism. Even the relatively pro-American Economist magazine warns that Bush plans to take over the World Bank and turn it into an extended arm of American foreign policy.

The dispute over the Bank's future role revolves around central issues: Should the West make more money available to developing countries? Or will poorer countries be forced to reform their often undemocratic and corrupt systems first?

There will inevitably be conflict when the most visible representative of the US neo-conservatives and the directors and economists of the world's most important foreign aid organization come together in the future. And whether he is a hawk or dove, Wolfowitz is a workaholic whose day often begins before sunrise. Soon he will be sitting in his new spacious office suite, long before his extended staff of bureaucrats. He'll also be just a block from the White House. This proximity could be symbolic of the future. Wolfowitz identifies with Bush's ambitiously ideological agenda more than almost any other US politician.

Will Wolfowitz listen?

Time magazine calls Wolfowitz, the son of a mathematician who lost a few family members in the Holocaust, the "godfather of the Iraq war." He is a man hated by the American left, who consider him a political criminal. An image of him using his own spit to part his hair before a TV interview -- caught accidentally on camera -- now forms part of the opening sequence in Michael Moore's anti-Bush film, "Fahrenheit 9/11." For anti-war protestors, the scene and image of Wolfowitz have achieved cult status. Ironically, the film can also be checked out at the World Bank.

The Bank, designed to help developing nations help themselves, today comes off as a bizarre and rather unsuccessful cross between a solid institution like Deutsche Bank and a Third World undertaking. The organization's headquarters has luxurious lounges, conference rooms and its own satellite channels to ensure uninterrupted video connections with its more than 100 regional offices. Fair trade coffee is served with lunch and, in the lobby, a bronze sculpture commemorating the eradication of an African virus is on view. The buzz of languages in the building where representatives from the Bank's 184 member countries work is reminiscent of an international airport terminal.

Reform or status quo?

"I will listen," Wolfowitz has promised his new staff, and soon he will have a chance to make good on his word. Currently a dispute is brewing over a $340 million loan for the Iranian healthcare system. As president, will Wolfowitz toe the line of US foreign policy and, for ideological reasons, deny funds for the mullahs? Or will he grant it?

America's political right wants the Bank to do more than just shift its priorities. It wants drastic reforms. Conservatives claim that of the approximately $1 trillion in funds the World Bank has spent on foreign aid since 1960, much has been misused or has even ended up in the bank accounts of corrupt African potentates. Allan Meltzer is the prophet of this political movement. Meltzer, a professor of economics from Pittsburgh, is a member of the influential and conservative American Enterprise Institute think tank. He was Ronald Reagan's economic advisor and was recently appointed to a panel of economists by Bush. "The Bank has a clear understanding which programs work and which ones don't," says Meltzer. In his opinion, the Bank has done nothing to address the problem of corruption, nor does it give developing countries any incentives to introduce reforms.

Five years ago, Meltzer, along with a commission bearing his name, presented the US Congress with proposals for comprehensive reform at the World Bank. The proposal failed. Meltzer offers reasons why. Bill Clinton was still in power in Washington, the French were stubborn, as usual, and the world view held by Germany's Ministry for Economic Cooperation and Development, he says, was stuck in the 1960s. But now the situation has changed. Bush's administration has largely embraced Meltzer's approach. Under Meltzer's plan, the World Bank would abandon its business with nations with emerging economies in the near future and turn it over to private investors. Countries like China and India would obtain capital exclusively through the financial markets. Moreover, the Bank would no longer lend money, but rather give it to the world's poorest countries -- but only on the condition that they first enact reforms such as the protection of private property. "Many poor countries have a socialist mentality," says Meltzer, "and if we stop giving them money, there's also a better chance that they will bring about reforms."

Finally, the World Bank would give up its efforts in Latin America and Asia, where there are already regional development banks, instead focusing its efforts on Africa. This approach would enable the Americans to gain control over the World Bank's excessively complex bureaucratic structure. Ultimately, according to the plan, the organization would even lose its name. If Meltzer has his way, it would simply be called the Development Agency in the future.

For many World Bank officials, European governments and Third World experts this is a nightmarish scenario. "The Bush administration wants to turn poor countries into copies of the West, into oases of peace, democracy and the market economy," says William Easterly, a New York professor who worked as a World Bank economist for many years. These, he says, are utopian, but impossible goals. "This wishful thinking is disastrous." In his view, the West should focus on realistic projects, like ensuring a reasonable water supply in the world's poorest countries.

US economist Jeffrey Sachs would rather see the World Bank spend more money than undertake reforms. Sachs, who became famous for his "shock therapy" for new market economies like Poland and Russia, has since remade himself into a committed champion of the Third World. In his new book, "The End of Poverty," Sachs, an advisor to United Nations Secretary General Kofi Annan, illustrates just what sub-Saharan Africa gets from the US contribution. According to Sach's calculations, the Americans spent $3 per inhabitant in 2002. After costs are deducted -- expenses for Western experts, administration and debt service, for example -- 6 cents remain for each African. "No wonder we have so little to show for ourselves in Africa," he says, "we haven't done much in the way of help to begin with."

The looming question -- larger budgets or more political pressure on the Third World -- will likely be addressed by Western heads of state several times this year. Certainly it will come up when foreign policy is discussed at summit meetings of the G-8 countries, at the UN and at the World Trade Organization.

Is bigger better?

For the first time in many years, the World Bank is moving to the center of the critical spotlight. In the past, the organization has had such a strong reputation -- especially compared with other international organizations -- that donor nations have constantly given it new responsibilities. That has pushed it into fields as diverse as healthcare, education, the environment and women's rights. That's part of the problem.

In the 60 years since the founding of the organization, the interrelationships among the World Bank, international development banks and the International Monetary Fund have created inefficient bureaucracies. National staffs, statistics departments and raw materials experts all exist in duplicate or triplicate. Moreover, complex control mechanisms make the granting of loans an arduous and lengthy process. The 24 executive directors meet twice a week to debate any loans larger than $20 million. Each director has six minutes of speaking time. A warning signal sounds when the speaker reaches the last 60 seconds of his allotted time.

But more importantly, according to the results of an internal study issued last week, World Bank officials have lost sight of their objectives in the global fight against poverty. In a devastating appraisal, the Bank's internal auditors concluded that in the past 15 years, the World Bank has concentrated too heavily on projects that never reach the world's poorest people. Although education and healthcare projects corespond to the visions of the donor countries, the recipient countries want loans for power, water, road construction and telecommunications projects. In addition, political dictates in the donor countries result in unjust distribution of funds. In the 1990s, affluent, so-called post-conflict countries like Bosnia-Herzegovina received nine times as much aid as former war-torn regions in Africa. According to the report, "lending must be made more transparent."

The World Bank's 9,300 employees are likely to face an uncomfortable future. And if the Americans have their way, they could even lose their autonomy. The reason: With its first-class credit rating, the World Bank has so far been able to borrow on the capital markets at attractive interest rates, allowing it to re-lend the funds to recipient countries at a small premium. Interest revenues and principle payments from these loans are meant to fund the Bank's administrative infrastructure as well as new loans to other developing countries. Because the poorest countries are unable to pay their debts, this financing model is already damaged.

If, as the Americans are demanding, loans are replaced with subsidies in the future, the model will be completely obsolete. In that case, the World Bank would be even more dependent on the goodwill of the US Congress and other donor institutions. Faced with the prospects of White House ideologues, their new president and harsh criticism from within their own ranks, World Bank officials are filled with nostalgia for the days of James Wolfensohn, Wolfowitz's predecessor. For 10 years, Wolfensohn protected the World Bank from drastic reforms and excessively direct intervention by wealthy donor states.

Wolfensohn was popular, and not just within the organization itself. During his travels, he was often received as a head of state. But those days came to an abrupt end Tuesday, when Wolfensohn retired. Already, though, at the Festival of Cultures, he was making his exit. In a nod to the Bank's international spirit, Wolfensohn, a talented cellist, joined colleagues from all over the world in performing a composition based on Indian and European influences. The title of the piece was "Expression of Happiness."

Translated from the German by Christopher Sultan

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