- The Washington Times - Thursday, May 17, 2007

The drumbeat to oust World Bank President Paul Wolfowitz was fed partly by growing unhappiness with the process that enables only Europe and the United States to pick the heads of the bank and International Monetary Fund.

The embattled World Bank leader announced yesterday that he will resign at the end of June, succumbing to a month of withering criticism over his handling of a pay package for bank employee Shaha Riza.

Critics also contend that the procedures for picking the bank’s president are hypocritical for institutions that preach openness and democracy and that they no longer reflect the reality that power centers in the world economy are shifting rapidly to Asia and other parts of the developing world.

Under an unwritten agreement that dates back to the founding of the World Bank and IMF after World War II, the U.S. president names the development bank head and Europeans appoint the managing director of the IMF.

Developing countries, international aid groups and academics are calling for reform of the closed selection process, arguing that it no longer comports with the banks’ mission to promote democracy, openness and transparency in the countries they provide with aid.

The arrangement also no longer reflects obvious economic realities. It not only leaves Japan — the world’s second-largest economy after the United States — out of the loop, but it also gives no say to China, Russia, Brazil, India, South Korea and other rising powers, which complain they are treated like vassals that must follow the dictates of the banks to receive assistance.

“The main issue is not whether Wolfowitz should go, but whether he should be there in the first place,” said Eric Gutierrez of ActionAid, an anti-poverty group.

“Wolfowitz heads an organization that preaches democracy, but he himself was undemocratically appointed. George W. Bush picked him from his stable of friends, and another scandal results. Clearly, the World Bank must act now so that its future leaders may be elected in a fair, democratic manner.

Mr. Wolfowitz’s “replacement should be selected internationally and appointed on merit, not because of his or her proximity to the Bush administration,” he added.

A group of 190 international officials and professionals from every continent — including many current and former World Bank and IMF staff economists and program directors — are calling on the institutions’ boards of directors to jettison the current selection process and allow the appointment of bank heads that come from any region of the globe as long as they are competent.

“Paul Wolfowitz’s problems at the World Bank stem in part from a widespread perception that he disproportionately represents U.S. interests rather than objectives that command a global consensus,” they said in a petition this week. “If the outdated convention is not abandoned, the leadership crisis at the World Bank is unlikely to be fully resolved even if Paul Wolfowitz decides to resign.”

The Council on Foreign Relations also made that point in a report this week.

“An institution will lack legitimacy if its members believe that it is dominated by a handful of large countries mindful of only their own immediate interests,” it said.

Calls for reform, it noted, are “inspired in large part by the emergence of large middle-income developing countries such as China and India, which now play a major role in the world economy, but which (like the low-income developing countries) are underrepresented in the [International Monetary] Fund.”

While the need for reform might seem obvious, it is far from sure to happen despite the open airing of World Bank linen during the Wolfowitz affair. Not only is the United States, the largest shareholder of the World Bank and IMF, reluctant to surrender its right to pick the bank president, but European nations — which led the drive to replace Mr. Wolfowitz — also do not want to lose their prerogative to select the IMF chief.

Negotiations over Mr. Wolfowitz’s fate yesterday reportedly had centered on face-saving ways for him to leave and be replaced by another pick by Mr. Bush. Critics say that would only reaffirm the same unfair process that brought in the much-disliked Mr. Wolfowitz and could result in the same unhappiness with the next pick.

Signs abound that both the World Bank and IMF are becoming relics of an earlier era of U.S. and Western European dominance and could be left behind by a rapidly changing world economy.

Most visibly, a few small Latin American countries, following the lead of Venezuelan President Hugo Chavez, have announced that they are leaving the IMF and World Bank. They will withdraw their contributions so they can set up their own reserve funds and never again be beholden to the U.S. and European leaders and their policies.

In a less-fiery departure, other former IMF clients stung by sometimes-draconian economic policies imposed during the Asian financial crisis a decade ago have taken steps to avoid any future meddling by the IMF.

Russia paid off all of its IMF loans early, and Brazil and South Korea also have shed their IMF debts. The Asian developing tigers have been taking advantage of rapid economic growth and prosperity to make IMF assistance unnecessary.

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