- The Washington Times - Tuesday, March 22, 2005

Last week, President Bush announced his nomination of Deputy Defense Secretary Paul Wolfowitz as next World Bank president. This is a disappointing decision for those who care about international economic development. At best, it shows a casual disregard for the Bank. At worst, it represents a politicization that could seriously hamper its work.

The World Bank was set up after World War II as part of the Bretton Woods Agreement to try to put the world economic system back together after the twin shocks of the Great Depression and the greatest war in history. The International Monetary Fund and the General Agreement on Tariffs and Trade (now the World Trade Organization) were part of the same effort.

The IMF was to maintain stability among world currencies and prevent volatile exchange rate movements. The GATT was to break down tariff barriers and facilitate world trade. The Bank was to help countries that had suffered most from the war get back on their feet. The first Bank loan went to France and most of its early lending went to Japan and the nations of Europe.

As time went by, the Bank’s reconstruction role ended as the physical damage of war receded. It should probably have closed shop at that point, since its primary goal was accomplished. But decolonization created many newly independent countries in Africa, Asia and Latin America that needed help achieving economic prosperity. Since their poverty was thought to make them fertile soil for communism, international economic development became an important goal of Western policy. So the Bank lived on.

There is no law assuring an American will hold the World Bank presidency. Indeed, its current president, James Wolfensohn, is Australian by birth but a naturalized U.S. citizen.

However, there has been an informal understanding since Bretton Woods that the managing director of the IMF will always be a European and the president of the Bank will always be an American. In practice, the U.S. executive director simply puts forward a nominee when there is a vacancy and it is rubber-stamped by the other directors.

Although the United States is the Bank’s largest shareholder, it does not own a majority of shares. (The Bank is structured like a private corporation, except all shareholders are governments and its shares don’t trade.) Theoretically, the other shareholders could get together and impose their own candidate. Though a few complain of a lack of consultation, in all likelihood Mr. Wolfowitz will prevail.

One difference this time is the Treasury Department appears to have been totally out of the loop on the nomination. Historically, it chose the Bank president and the White House went along. This is fitting because Treasury monitors the Bank day-to-day and instructs the U.S. executive director how to vote on loans and other policy issues.

Having worked at the Treasury Department, I cannot believe it recruited Mr. Wolfowitz or favored his appointment. His government service has been at competing departments. He has no experience in banking or finance, has never worked in the development field except peripherally and is not known to have studied or written on the subject. The nomination appears to have been imposed upon Treasury by the White House.

By all accounts, Mr. Wolfowitz had hoped to succeed Defense Secretary Donald Rumsfeld. But with Mr. Rumsfeld showing no signs of leaving, Mr. Wolfowitz may just want to move on. The Bank presidency is conveniently available (Mr. Wolfensohn’s term runs out in May), pays well, and requires no messy Senate confirmation. In return for his work on Iraq, Mr. Bush may have no other motive than rewarding a loyal aide.

But it is also possible Mr. Bush wants to use the Bank to pursue spreading democracy to the Middle East and elsewhere. In the past, the Bank has generally ignored domestic political factors in making loans, judging each one on its own merits rather than the worthiness of those in power. With few real democracies in the developing world, most loans necessarily have gone to nations best characterized as having authoritarian rule.

Though the Bank takes account of corruption in making loans, if only to protect its investments, it is rightly wary of compromising its neutrality by seeming to have a political agenda. Doing so would greatly complicate the Bank’s job and risk its staff being considered political partisans. Under Mr. Wolfowitz, they may be viewed as agents of U.S. foreign policy.

Similar concerns were expressed when Robert McNamara, a former defense secretary, was named president of the World Bank in 1968, and the Bank survived.

However, I would feel better if President Bush had appointed an actual banker to this position.

Bruce Bartlett is senior fellow with the National Center for Policy Analysis and a nationally syndicated columnist.

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