A World Bank special panel has found that Paul Wolfowitz's handling of a promotion for his companion violated the terms of his contract and constituted a conflict of interest.
The panel recommended that the World Bank's 24-nation board in deciding the issue, should consider "whether Wolfowitz will be able to provide the leadership needed to ensure that the bank continues to operate to the fullest extent possible in achieving its mandate."
Board members have discussed a range of disciplinary options. It could fire Wolfowitz, ask him to resign, signal that it lacks confidence in his leadership or reprimand him. Board members have been leaning toward an expression of no confidence or other tough language that would make it difficult - if not impossible - for Wolfowitz to stay on.
But the pressure for Wolfowitz to step down has intensified. The Financial Times reports that 37 of the World Bank’s 39 country directors sent a letter to Wolfowitz and the board demanding that the bank “practice what it preaches on governance and accountability.”
“We look forward to an outcome consistent with the standards we advocate for others,” the country directors said. “Failure to act credibly, on the other hand, risks both the reputation and the mission of the institution.” “If we do not maintain high standards of integrity ourselves, we cannot speak effectively on the governance issues that lie at the heart of our development mandate,” the directors added.
Wolfowitz has described the report, which claims his actions resulted in a situation that has caused a "crisis in the leadership" at the institution, as "unfair and unwarranted." He said he acted in good faith in arranging Riza's pay package. He has accused his critics of launching a "smear campaign" against him.
He is scheduled to make an appearance before the board late Tuesday. The proceedings are not public. A decision could come as early as Tuesday or Wednesday.
The controversy that has put Wolfowitz's job in jeopardy involves his handling of the 2005 compensation pay package for his girlfriend, Shaha Riza, a bank employee.
The special bank panel concluded that Wolfowitz's involvement in the details of the package "went beyond the informal advice" given by the bank's ethics committee and that he "engaged in a de facto conflict of interest," the report stated. Under Wolfowitz's contract as well as the code of conduct for board officials, he was required to avoid any conflict of interest, the report
In a response to the panel's report, Wolfowitz said, "It is highly unfair and unwarranted to now find that I engaged in a conflict of interest because I relied on the advice of the ethics committee as best I understood it."
Wolfowitz also said he did not attempt to hide details of the arrangement from bank officials. "I did not have it locked up or placed in a secret drawer; it was a contract of the bank," Wolfowitz wrote in his submission to the panel.
Riza worked for the bank before Wolfowitz took over as president in June 2005. She was moved to the State Department to avoid a conflict of interest but stayed on the bank's payroll. Her salary went from close to $133,000 to $180,000. With subsequent raises, it eventually rose to $193,590.
The panel concluded that the salary increase Riza received "at Mr. Wolfowitz's direction was in excess of the range" allowed under bank rules. Wolfowitz "placed himself in a conflict of interest situation" when he became involved in the terms and details of Riza's assignment and pay package and "he should have withdrawn from any decision- making in the matter," the
The panel acknowledged, however, that the informal advice provided by the ethics committee "was not a model of clarity."
In addition, the special panel said it was of the view that the controversy "has had a dramatic negative effect on the reputation and credibility" of the bank, had raised "serious questions" about the bank's governance and ability to carry out its mission and was contributing to "erosion in the operational effectiveness" of the bank.
The special panel also raised fears that the fracas could hinder the bank's ability to raise billions of dollars from countries around the world to provide financial help to poor countries.
Before he took the bank's helm, Wolfowitz was the No. 2 official at the Pentagon and a key architect of the U.S.-led war in Iraq.
European members - led by Germany, France and the Netherlands - are pushing for Wolfowitz to resign. European and other countries, however, would still like to avoid a pitched battle with the United States, the bank's largest shareholder. It's unclear, though, whether such a battle can be avoided.
Many of the bank's staff, former bank officials, aid groups and Democratic politicians also have called on Wolfowitz to resign.
Vice President Dick Cheney said Monday that Wolfowitz should remain chief of the bank. The White House has repeatedly expressed confidence in Wolfowitz. A spokeswoman for U.S. Treasury Secretary Henry Paulson said the panel's findings did not merit the dismissal of Wolfowitz.
To that end, the Bush administration has intensified efforts to win support for Wolfowitz and is reaching out to the other members of the Group of Seven countries - Japan, Germany, France, Britain, Italy and Canada. A conference call among the G7 countries is anticipated.
The U.S. requested earlier Monday that the special panel's report be delayed being sent to the board by a few hours, said White House spokesman Tony Fratto. "But it had nothing to do with phone calls or contact with other countries," Fratto said. "We just needed the time to ensure that the report is fair and factual and to allow for a proper process for discussions going
forward. It had nothing to do with presidential activity."
By tradition, the World Bank has been run by an American, while the International Monetary Fund has been run by a European. U.S. President George W. Bush tapped Wolfowitz, a move that was approved by the bank's board. The United States keenly wants to preserve that decades-old tradition.