Thursday, May 31, 2007

A Diplomat for the World Bank

It was a rare experience for George W. Bush: A major Presidential decision was greeted with bipartisan praise and international congratulations.

By picking former U.S. Trade Representative Robert Zoellick on May 30 to replace Paul Wolfowitz as president of the World Bank, Bush made a symbolic and substantive statement that he hoped to unify the controversy-wracked institution and put Wolfowitz's divisive, two-year tenure quickly behind him.

Wolfowitz resigned his position, effective June 30, amid ethics questions raised by his role in securing a generous compensation package for his girlfriend (see BusinessWeek.com, 5/17/07, "More Problems After Wolfowitz").

An Expert in Diplomacy

Zoellick, like Wolfowitz, is known as an accomplished academic and a demanding bo, pss. But unlike the combative Wolfowitz, the prospective bank president has a reputation as an expert in diplomacy and international banking. Zoellick, 53, served as a top State Dept. official under President Bush, and the top Treasury Department official on international economic matters.

He was also President George H.W. Bush's top adviser for two Group of Seven international economic summits, as well as a managing director at Goldman Sachs (GS) and chairman of the company's international advisers department. His global economic expertise includes work on issues from Latin American debt relief and German reunification to Chinese entry into the World Trade Organization and restructuring U.S. aid programs for Africa.

Democratic Senator Max Baucus (D-Mont.), chairman of the Senate Finance Committee, lauded Zoellick as "the right person for this job." Said Baucus: "It's hard to imagine a more intelligent, hard-working, and capable person to assume the bank's leadership at this difficult point in its history. Bob has the skills and the integrity to put the bank back on the right path."

Not Much of a Honeymoon

House Speaker Nancy Pelosi (D-Calif.) praised Zoellick's efforts to bring peace to war-torn Darfur, calling him a sensitive and caring person. Even Senator John Kerry (D-Mass.), Bush's vanquished 2004 Presidential rival, says Zoellick "brings a diverse range of skills and international experience to the position" and hopes he "can regain the confidence of employees and donor nations that was lost under the previous leader."

Kind words aside, Zoellick can't expect much of a honeymoon in his new job as the bank's 11th president in its 60-year history. Bank-watchers say he has a lot of work to do to soothe the hard feelings generated by Wolfowitz, whose role as an architect of the Bush Administration's Iraq policy rankled European allies and bank staffers. "His major initial challenge is to rebuild the morale of the organization and to bring someone with a strong management background in to put things back together again in a better way than before," says Edwin "Ted" Truman, senior fellow at the Peter G. Peterson Center for International Economics.

During the White House announcement ceremony, Bush and Zoellick both alluded to the recent divisions and the challenges ahead. Zoellick, said Bush, "has earned the trust and support of leaders from every region of the world." Zoellick declared that "we need to approach this task with humility and creative minds." He praised the World Bank staff that warred with Wolfowitz as "many fine professionals from all over the world."

"The World Bank has passed through a difficult time for all involved," Zoellick said during the nine-minute event in the Roosevelt Room. "There are frustrations, anxieties, and tensions about the past that could inhibit the future. This is understandable, but not without remedy. We need to put yesterday's discord behind us and to focus on the future together."

Major Stylistic Shift

That might be easier said that done. The bank's staff was in open revolt against Wolfowitz's top-down management style and had demanded his resignation. Many of its clients had chafed at Wolfowitz's efforts to combat corruption among recipient governments, arguing that the bank president had different standards for African nations than for Middle Eastern allies of the U.S.

And European governments had been alienated by what they considered Wolfowitz's lack of consultation. Members of the European parliament have speculated that the European Union and individual European governments might increase their own bilateral aid efforts to combat global poverty rather than continue their current levels of support of the World Bank.

Meanwhile, some international aid groups say the World Bank has been ineffective in its core mission of reducing global poverty. They say its organizational structure is too slow and bureaucratic to respond quickly in an era of cross-border economic threats including climate change, AIDS, malaria, cyberterrorism, and identity theft.

And while Zoellick's nomination represents a major stylistic shift from the Wolfowitz era, the incoming bank president has not signaled any policy changes, at least not yet. Indeed, Zoellick on May 30 indicated that he would continue Wolfowitz's efforts to combat endemic corruption among recipient governments, particularly in Africa.

Liberals Remain Skeptical

Zoellick did signal an effort to mend fences. He immediately announced plans for a series of meetings with bank employees, donor countries, and aid recipients to examine ways in which the bank could better fulfill his mission. Atop his agenda is rebuilding the confidence of wealthy nations he needs to donate $30 billion in coming years to replenish the bank's signature program, which gives interest-free loans to impoverished countries.

While senior Democrats and veteran European diplomats were pleased, some liberal groups were skeptical that much of substance would change. Jessica Walker Beaumont, trade and debt specialist for the American Friends Service Committee, said Zoellick has a history of "protecting multinational corporate interests."

And Asia Russell, director of international advocacy for the liberal group Health GAP, said Zoellick has in the past "carried water for Big Pharma" in trade talks. "We are very concerned that Zoellick will apply the same flawed, market-fundamentalist thinking to the major health policy issues that have made the bank so ineffective in fighting poverty."

Still, the author of an acclaimed 2004 book on the bank's history thinks that the damage of the Wolfowitz era can be overcome through skillful diplomacy and management. "This is a supertanker, not a small boat, and it takes a lot to sink it," says Sebastian Mallaby, a senior fellow at the Council on Foreign Relations.