April 13, 2007
Turmoil Grows for Wolfowitz at World Bank

By STEVEN R. WEISMAN
WASHINGTON, April 12 — Paul D. Wolfowitz’s tenure as president of the World Bank was thrown into turmoil on Thursday by the disclosure that he had helped arrange a pay raise for his companion at the time of her transfer from the bank to the State Department, where she remained on the bank payroll.

In a chaotic day of revelations and meetings at a normally staid institution, Mr. Wolfowitz apologized for his role in the raise and transfer of Shaha Riza, his companion, to a few hundred staff members assembled in the bank building atrium, only to be greeted by booing, catcalls and cries for his resignation.

Earlier, the bank’s staff association had declared that it was “impossible for the institution to move forward with any sense of purpose under the present leadership.” The association had helped spearhead an investigation into Ms. Riza’s transfer and raise, details of which came into the open in the last 24 hours.

The events injected a new ugliness into what had already been a bitter rift between Mr. Wolfowitz and many of the bank’s employees, who have questioned his suitability for the job as a former deputy secretary of defense and architect of the Iraq war, and have challenged many of his policies at the bank, especially those cracking down on corruption in which he suspended aid to several countries without consulting the board.

The World Bank’s 24-member executive board, the body that elected Mr. Wolfowitz to the job after he was nominated by President Bush in 2005, held hurried meetings throughout the day amid mounting speculation that it might reprimand him or ask him to resign.

But at the end of the day, there was no statement from the board. The matter appeared certain to produce more meetings and engulf delegates at the annual spring session of finance ministry officials in Washington, sponsored by the bank and the International Monetary Fund.

Mr. Wolfowitz apologized at a morning news conference and at the atrium meeting after the staff association disclosed that it had found a dated memorandum from Mr. Wolfowitz to a vice president for human resources at the bank, apparently instructing him to agree to the terms of a raise and reassignment for Ms. Riza.

The transfer and a subsequent raise eventually took her to a pay of $193,590 from $132,660, tax free because of her status as a diplomat, and exceeding even the salaries of cabinet members. “In hindsight, I wish I had trusted my original instincts and kept myself out of the negotiations,” Mr. Wolfowitz said.

“I made a mistake, for which I am sorry,” he added, pleading for “some understanding” of the “painful personal dilemma” he faced when he left the Pentagon to become bank president. Mr. Wolfowitz said he had been seeking to avoid a conflict of interest by having Ms. Riza, with whom he had a personal relationship, transferred away from his supervision.

What drove the anger at the Bank was not that Mr. Wolfowitz had denied earlier that he had sought Ms. Riza’s transfer, but that he had been less than fully candid in discussing it until documents surfaced showing his direct role.

His earlier insistence that he had consulted with various ethics officials has also been disputed by some of them, who say they were not involved in the salary aspect of discussions.

Mr. Wolfowitz, who is divorced, has been close to Ms. Riza for several years, according to people who have worked with them. She was a communications officer in the Middle East and North Africa bureau of the bank when Mr. Wolfowitz arrived, and was transferred in September 2005 to the Middle East and North Africa bureau to help set up a semi-independent foundation to promote democracy in that region.

Her initial supervisor at the State Department was Elizabeth Cheney, whose father, Vice President Dick Cheney, has been a longtime associate of Mr. Wolfowitz. Ms. Riza now serves as a consultant to the foundation, known as the Foundation for the Future, while still drawing her World Bank salary, the State Department said.

Mr. Wolfowitz, in his talk to the bank staff, essentially implied that his fate was up to the board. “I proposed to the board that they establish some mechanism to judge whether the agreement reached was a reasonable outcome,” he said of the arrangement for Ms. Riza. “I will accept any remedies they propose.”

He also appealed to the staff members to look beyond his role in planning the Iraq war and join him in fighting poverty in Africa and other missions of the bank.

“For those people who disagree with the things that they associate with me in my previous job, I’m not in my previous job,” he said.

Many bank officials said board members were likely to wait to decide what to do after checking with their finance ministers, many of whom were on their way to Washington for the annual meetings.

A decision as big as whether to remove Mr. Wolfowitz or encourage him to step down would be likely to involve leaders of the main donor countries of the bank in discussions with President Bush, the bank officials said.

The bank’s five largest donors — the United States, Japan, Germany, France and Britain — each nominate one board member, but their voting power is based on shares in the bank. The United States, with 16 percent, has the largest share, making it customary for the White House to nominate the bank president.

But the bank has been gripped by resentment for years, culminating in Mr. Wolfowitz’s tenure, over the perception that the United States has too much influence. That trend reflects declining American influence at the bank at a time when European and Asian countries have gained in economic clout.

There is speculation among bank officials that if Mr. Wolfowitz leaves, European members and others will agitate for more of a say in choosing his successor, a possible factor in whether Mr. Bush decides to go along with his removal.

At the White House, Tony Fratto, a spokesman, said: “Of course, President Wolfowitz has our full confidence” and in dealing with the controversy over his involvement with Ms. Riza, “he has taken full responsibility and is working with the executive board to resolve it.”

The storm over Mr. Wolfowitz has been brewing for a week, following disclosures by the bank’s staff association and the Government Accountability Project, an independent watchdog group, that Ms. Riza had received an unusually large raise. They questioned whether the proper procedures had been involved.

The controversy gained steam after the issue was mentioned by Al Kamen in his Washington Post column. The Financial Times has also disclosed details of the matter.

Subsequently, Mr. Wolfowitz asserted that he had consulted the board and the bank’s general counsel, the board’s ethics committee director, and the human resources director to arrange the transfer.

These officials then contradicted Mr. Wolfowitz, saying that while they supported the transfer and some kind of raise, they were not involved in the amount.

Alison Cave, chairwoman of the bank’s staff association, said the amount of the raise and the procedures followed seemed to violate bank rules. Ms. Cave also said the records showed that Ms. Riza was to return to the bank at the higher salary level and be given a rating of “outstanding” in her performance reviews while with the foundation.

Mr. Wolfowitz did not deny his involvement, but Thursday was the first day that evidence surfaced of his direct role.

Bank officials said they were somewhat mystified that the details of the transfer, worked out in 2005, did not get out until now. Some attributed it to the changed landscape in Washington with President Bush’s diminished authority, a Democratic Congress and increasing unpopularity of the Iraq war.

Mr. Wolfowitz has also been undeniably weakened by his recent tangles with the board, bank officials said.

For example, as part of his broad anticorruption drive, Mr. Wolfowitz for a time suspended assistance to India, Chad, Kenya, Congo, Ethiopia, Bangladesh and other countries without consulting the board. Uzbekistan’s aid was suspended after it ousted American troops in 2005, leading to charges of political motivation.

Last month, the bank adopted a new anticorruption policy that insisted that Mr. Wolfowitz consult board members, and it placed other restrictions on his ability to act on the issue.

Resentment of Mr. Wolfowitz has extended to his two top aides, Robin Cleveland and Kevin Kellems, both of whom served with him at the Pentagon.

Although some bank officials said the board might have decided to reprimand or dismiss one or both of them for the salary increase, that was no longer deemed a way out of the crisis for Mr. Wolfowitz.

He also appeared a victim of his own declaration that he would bring a new era of accountability to the bank. He boasted that he had doubled the staff of the public integrity division so it could prosecute cases of graft against corporations and bank employees, stirring resentment throughout the bank that he saw them all as corrupt.

Some bank officials, speaking anonymously so they could be candid, said that instead of ousting Mr. Wolfowitz, the board might prefer that he remain but in a weakened position.

“It’s a coin toss right now whether Wolfowitz stays,” one official said. “But the board might prefer to have a weak president dangling by the thread so they can run the policies themselves for the next two years.”

World Bank pledges action on Wolfowitz

By Krishna Guha in Washington

Published: April 13 2007 13:53 | Last updated: April 13 2007 13:53

Paul Wolfowitz’s future as president of the World Bank was in jeopardy on Friday after the bank’s board issued a damaging finding of facts on his role in the Shaha Riza affair and pledged to ”move expeditiously to reach a conclusion on possible actions to take.”

The board said that its ”consideration of the matter” would ”focus on all the relevant governance implications for the Bank”.

The promise of further action will intensify pressure on Mr Wolfowitz to step down of his own accord, ahead of possible censure by the board.

As of Friday morning, though, there was no indication that Mr Wolfowitz – who issued a public apology Thursday morning – was ready to give up the fight.

Much will now depend on the position of the US, which is more nuanced than yesterday’s reaffirmation by the White House of confidence in Mr Wolfowitz suggests.

The decision came after a marathon emergency session of the 24-member board, made up of representatives of the Bank’s shareholder governments, which began around midday on Thursday and ran late into the night.

Overnight reports suggest European nations took the lead in driving for a tough board statement, overcoming reluctance from some other states. However, there was no consensus to call for Mr Wolfowitz’s resignation.

The controversy relates to Mr Wolfowitz’s personal involvement in securing a promotion and a pay rise far in excess of the normal maximum associated with such a promotion for Ms Riza, a bank official with whom he was romantically involved, as part of a secondment package.

The board statement – hammered out after tough negotiation between board members – states that Mr Wolfowitz ”sent the vice-president, human resources, a written memorandum directing him to reach agreement with the staff member and specifying in detail the terms and conditions.”

The existence of this memorandum, dated August 11 2005, was first revealed by the Financial Times.

The statement further notes that the then ethics committee ”had not been involved in the discussions with the concerned staff member. Neither did it find that the terms and conditions of the agreement had been commented on, reviewed or approved by the ethics committee, its chairman or the board.”

However, the statement does acknowledge that the ethics committee originally advised Mr Wolfowitz to consider a secondment for Ms Riza as one of a number of possible ways to comply with Bank rules that prohibit employees from working under the authority of a colleague with whom they are romantically involved.

It also states that the board suggested that Ms Riza could be offered a promotion as compensation for the disruption to her career.

The board released the full report of the subcommittee that investigated the Riza secondment and promised to release all relevant documents.

Copyright The Financial Times Limited 2007

April 14, 2007
News Analysis

Wolfowitz Fight Has Subplot

By DAVID E. SANGER

WASHINGTON, April 13 — When President Bush appointed Paul D. Wolfowitz as the president of the World Bank two years ago, the White House had to put down an insurrection among European nations that viewed the administration’s best-known neoconservative as a symbol of American unilateralism and arrogance.

For a while, Mr. Wolfowitz seemed to defuse those fears, even taking on the Bush administration over how best to aid the poorest nations of Africa. But now it is clear that the chorus of calls in recent days for Mr. Wolfowitz’s ouster is only partly about his involvement in setting up a comfortable job, with a big pay raise, for a bank officer who is Mr. Wolfowitz’s companion.

At its core, the fight about whether Mr. Wolfowitz should stay on at the bank is a debate about Mr. Bush and his tumultuous relationship with the rest of the world, particularly the bank, the United Nations and the International Atomic Energy Agency, which have viewed themselves — at various moments since the invasion of Iraq in 2003 — as being at war with the Bush White House and its agenda.

As finance ministers gathered in Washington on Friday for the bank’s weekend meeting, Mr. Wolfowitz worked behind the scenes, seeking support for keeping his job. But there were few endorsements of his leadership beyond those offered by the Bush administration.

In foreign capitals, and among the bank’s staff members, it has been noted that Mr. Wolfowitz’s passion for fighting corruption, which he has said saps economic life from the world’s poorest nations, seemed to evaporate when it came to reviewing lending to Iraq, Pakistan and Afghanistan, three countries that the United States considers strategically vital. Some longtime bank staff members complained that Mr. Wolfowitz relied too little on experts in international development and too much on a pair of aides who served with him in the administration.

Members of the bank’s board from around the world began comparing what they called the murky way in which the bank made some policy decisions to the secretive habits of the Bush administration.

Nancy Birdsall, the president of the Center for Global Development, a group that monitors aid to the world’s poorest nations, described what she termed “real doubts about Wolfowitz’s judgment” inside the bank.

Mr. Wolfowitz came to the bank with heavy political baggage. Since the bank was set up at the end of World War II, its president has always been an American, a fact that has engendered more and more resentment over time. That reaction was compounded when Mr. Bush selected Mr. Wolfowitz, who had served as deputy secretary of defense and an architect of the Iraq war.

“It took a huge amount of effort to quiet this down,” a member of the bank’s board of governors and an early supporter of Mr. Wolfowitz recalled Friday of the early insurrection. “And you would think, knowing that he was going into an institution that was deeply suspicious of him and the Bush administration, that he would have done everything he could to allay those concerns.”

At first, Mr. Wolfowitz did so. He made Africa his first priority. He displayed a passion and energy for the work — much as he did many years ago as ambassador to Indonesia, where he immersed himself in the culture and took on a dictator, Suharto. His campaign against corruption was intellectually unassailable and quintessentially American, and he was certainly right as far as the facts were concerned, members of the bank’s staff and leadership say.

But eventually his focus on that issue put him at odds with career officials at an institution that is famously resistant to outside influence, and which believes that fighting poverty has to come first, even if that means dealing with countries whose leaders are not above skimming a few million dollars along the way.

“He came in to a mood of skepticism and strong reservations by many,” said Geoffrey Lamb, a former vice president of the bank, who worked closely with Mr. Wolfowitz on questions of finance for the world’s poorest nations before he retired last summer. “My feeling was that he provided a bit of reassurance, by moving actively on aid to Africa and debt forgiveness. Clearly, those early perceptions have changed a lot.”

Over time, Mr. Wolfowitz created an impression that at critical moments he was putting American foreign policy interests first, most notably when he suspended a program in Uzbekistan after the country denied landing rights to American military aircraft, and directed huge amounts of aid to the countries he once recruited to sign on to Washington’s counterterrorism agenda.

It did not help that he relied heavily on a pair of aides drawn from the Bush administration, Robin Cleveland and Kevin Kellems, who created an inner circle that the bank’s professional staff members said they had great trouble piercing.

Mr. Wolfowitz’s defenders say that he was right to come in with a mission of shaking up the ingrown bureaucracy at the bank, and that the place desperately needed shaking up. But even they acknowledge that management has never been his strong suit, and that his judgment in dealing with the transfer of his companion, Shaha Ali Riza, was questionable.

In the backlash against Mr. Wolfowitz, though, there is also an undercurrent of settling scores — including those that go beyond the World Bank. Europeans still fume over Mr. Bush’s decision to send John R. Bolton, one of the biggest critics of the United Nations, to New York to serve as ambassador there — an experiment that ended when it became clear that the newly Democratic Senate would not confirm him to finish Mr. Bush’s term.

Others recall that the administration tried to fire Dr. Mohamed ElBaradei, the Egyptian-born head of the International Atomic Energy Agency, who famously declared in early 2003 that there was no evidence Saddam Hussein had reconstituted his nuclear weapons program. Dr. ElBaradei proved to be right, and was soon awarded the Nobel Peace Prize.

So far, the White House has expressed confidence in Mr. Wolfowitz, but not with much vigor. There were no signs that President Bush was about to rush to his aid, though that could still happen. European and Asian officials bet it will not.

“There is a sense that we’re finally at a moment when Bush needs the world more than the world needs Bush,” said a senior foreign official who flew into Washington recently for the annual meeting of the bank and the International Monetary Fund. “And there’s more than a little of that mixed in this whole argument over Wolfowitz’s fate.”