Will He Stay or Will He Go?

Last week the Financial Times scooped other papers with its revelation that World Bank President Paul Wolfowitz personally ordered the Bank’s vice president of human resources to offer Wolfowitz’s girlfriend, Shaha Riza, a generous raise and promotion as part of her secondment package to the US State Department. (Riza was shipped off to the State Dept. pursuant to Bank rules that – surprise – don’t allow staff to work under the authority of those with whom they are intimately involved.)

When the story broke, the Bank’s board held an emergency session to go over the findings of its own investigation of the matter. With the media feeding frenzy beginning to froth, Wolfowitz apologized to staff personally for his handling of the affair. But throngs of Bank staff, European diplomats and some leading anti-poverty NGOs are still calling for Wolfowitz’s head.

As Wolfowitz weighs his decision to hunker down or flee, he is probably taking comfort in the fact that, as the FT pointed out on Friday, he only “in theory…serves at the pleasure of the board.” Rather he was appointed by POTUS, and even if the board could give him the boot, there does not appear to be enough shareholder governments willing to go that far—yet.

The FT’s editorial on Friday did not waste words, arguing that the World Bank president “has one asset: his credibility” and now that he’s compromised that, he should resign or the Bank itself risks being stripped of its moral force and branded a hypocritical institution.

In sharp contrast, the Wall Street Journal ran a bitter editorial today that mounted a persuasive defense of the embattled Wolfowitz. The editorial gives highlights of the 109 pages released by the Bank from its ethics investigation, and appears to show that Wolfowitz disclosed his relationship with Riza and requested that he recuse himself from having anything to do with matters affecting his girlfriend before he signed his own employment contract.

The editorial then follows the paper trail between Wolfowitz, his lawyers, the bank’s general counsel and the ethics committee chairman. The upshot, at least according to the WSJ, is that Wolfowitz only intervened after attempting to recuse himself but was prevented from doing so by the ethics committee; and that he intervened only after the committee advised him to compensate his girlfriend for her damaged career – due to the conflict of interest caused by Wolfowitz’s appointment.

NewsShark Verdict: Wolfowitz won’t step down, nor will the Europeans on the board rally the votes needed to oust him. The two real stories here are U.S. vs Europe and Wolfowitz vs. most of the World Bank. To make a few blatant generalizations, Europe doesn’t like Wolfowitz’s anti-corruption campaign; they don’t like his history in the Bush Administration; and they want to wrest control over the Bank from the US. Now, Bank staff members also don’t like Wolfowitz for his focus on anti-corruption, his history in the Bush Administration, and, well, you get the idea. But Wolfowitz is used to strong criticism, and, while rattled, will probably try to hang on.

The FT was probably right when in a news story today it said if the issue became a domestic political scandal in the US, then the White House will not let Wolfowitz go—at any cost. What the FT may have forgotten, however, is that such a story has next to zero chance of becoming a domestic political issue in the US, simply because most Americans could give a damn about what a former Bush hawk did or did not do at the World Bank.