KEY POINTS:
Why is the World Bank in the spotlight?
Because of a woman called Shaha Riza, the girlfriend of the slightly more famous Paul Wolfowitz, who is the neo-conservative advocate of military action in Iraq, the United States defence department No 2 ahead of the invasion, and more recently the president of the World Bank. Or from June 30 "the former president".
Riza worked for the World Bank before her partner took over as president in June 2005. She was moved to the US State Department to avoid a conflict of interest, but stayed on the bank's payroll, with a salary - negotiated with Wolfowitz - that shot up from US$130,000 ($179,923) a year to US$180,000. After charges of favouritism, an internal investigation damned the pay rise as excessive and said Wolfowitz broke bank rules in the way he decided the issue. He has now negotiated the terms of his departure, still protesting that he has done nothing wrong.
What is the World Bank anyway?
The organisation was set up in 1944, amid the ashes of World War II, to fund reconstruction and economic redevelopment. Its first loan was to devastated France. Its mission has evolved over the subsequent decades, so that now it is the arm of the international system charged with alleviating poverty in the world's least developed countries. In 2005 alone it handed out more than £11 billion in loans and grants for nigh on 300 projects.
Funded by its own borrowing and by 184 member countries in proportion to their wealth, it is dominated by its biggest contributor, the US, which has traditionally picked the president. The appointment of Wolfowitz sharpened anti-globalisation campaigners' criticism that the bank can act like an arm of US foreign policy.
Surely Riza's pay rise is a trivial affair?
It looks that way if you get bogged down in the minutiae of whether Wolfowitz tried and failed to recuse himself from decision-making on Riza's pay, or of whether the bank's ethics rules are as black and white as they should be.
But the reality is that the issue was a pretext for Wolfowitz's enemies inside the bank to take issue with his leadership. He made too many enemies because of an autocratic management style and because he surrounded himself with cronies from his Pentagon days. And then there is the bigger question over the direction he was taking the bank. Wolfowitz pushed "anti-corruption" to the top of the World Bank agenda, promising to use its power to pressure developing world dictators who have skimmed World Bank loans to fund their own lifestyles. But more recently Wolfowitz has argued to make loans conditional on political change by corrupt regimes.
It is a strategy opponents say is unfair, since the US-dominated bank gets to judge who is corrupt. The bank has threatened withholding funds from Uzbekistan, which has expelled US soldiers, while continuing activities in US-allied countries such as Pakistan and Afghanistan. It is a strategy, too, which critics say can only further penalise some of the world's poorest peoples.
Who claims the bank is exacerbating poverty, and why?
Hilary Benn, Britain's international development secretary, made a stand on the issue of conditional loans last year, threatening to withhold a (fractional) part of British funding for the World Bank. He succeeded in watering down Wolfowitz's plans to limit loans to countries deemed to have corrupt regimes, and argued that the bank should move faster to eliminate other types of conditions, too.
A community of non-governmental organisations have long fought the World Bank's agenda. Its loans have traditionally been tied to pledges from receiving governments that infrastructure projects should be privatised - generating work in many cases for Western companies - or that other public sector reforms be enacted along Western lines. From Ghana to Bolivia, where the privatisation of essential services has ended subsidies for water supplies, to Haiti, where an end to rice subsidies impoverished the country's rice farmers, World Bank conditions have been blamed for exacerbating the suffering of the very poorest. Non-governmental organisations have begun protests which started at the bank's meeting in Paris earlier this year. Christian Aid and War on Want in Britain are among the signatories to a Europe-wide petition demanding change.
Are there criticisms in other areas?
It is not only in the area of social and economic policy that an anti-globalisation alliance has been developing a critique of the bank. On the environment, it stands accused of often disregarding the well-being of local peoples and, by its continued support for oil and gas and mining projects in the developing world, exacerbating global warming.
In 2001, after years of criticism from green groups, the bank agreed to study its fossil fuels projects, and a report prepared by Indonesia's former environment minister, Emil Salim, concluded there is little evidence that such projects enrich local populations rather than the elites and Western companies involved.
What's the World Bank's defence?
It says it must set conditions on loans. Though in most cases they are at low, or no interest rates, they are loans, after all, and it needs to be assured that they are paid back. Criticisms it is favouring Western companies have stung it into reforms, it says, and it is operating in a more transparent way than it was a decade ago. Its September 2005 review of the issue said its conditions had been "transparently disclosed and clearly defined". The Wolfowitz affair, though, puts all these issues back on the table and the debate over a successor - including even whether it should no longer be an automatic American appointee - means that the World Bank's future is unclear.
So who might take over?
With so much controversy, the choice of a successor to Wolfowitz is likely to be an agonising one, particularly since the organisation has been revealed to be split along US-European lines. There could be pressure to end the practice of having the US president automatically nominating an American for the job, but there seems little sign of the White House agreeing to that just yet.
In the event that a new World Bank president comes from Washington, one possible candidate is the current Treasury Secretary, Hank Paulson, a former Wall St banker whose reputation as a campaigning environmentalist made him a surprising choice for a Bush administration job in the first place. Other names being bandied about include former Deputy Secretary of State Robert Zoellick and Deputy Treasury Secretary Robert Kimmitt.
- INDEPENDENT
