Financial Daily from THE HINDU group of publications
Monday, Mar 28, 2005
Money & Banking - Insight
Mr Wolfowitz for World Bank: Scepticism overdone?
Even the US' allies, like those in Europe, have expressed shock and surprise at the lack of consultation by the US. Generally, Mr Wolfowitz's choice has been greeted with scepticism, particularly about his lack of known commitment to development and especially his obsession with the US' hegemonic goals in geopolitics.
Defenders of the choice have cited Mr Wolfowitz's experience as US Ambassador to Indonesia, a large, underdeveloped country. This is special pleading since an Ambassador has little chance to manage economic problems. He, after all, liaises at the political level. Whatever economic knowledge brushes off on such contacts is bound to be trivial and, at best, anecdotal.
I, however, feel that the critics have gone overboard in drawing conclusions about Mr Wolfowitz's adequacy for the job of President of the International Bank for Reconstruction and Development (IBRD), their objections being based mainly on his association with Bush's policy on Iraq. That he was a dedicated follower of the Bush doctrine, and may be even its architect, can have little to do with his competence in managing IBRD.
Essentially a bureaucrat, who has managed the large forces at his disposal, Mr Wolfowitz did his assigned job well. Its failure or success in Iraq owed as much to its policy bias, which is attributable to Bush, as much as to Mr Wolfowitz. That can hardly be a basis for judging whether Mr Wolfowitz will be good at 1818, H-Street, Washington DC.
What is more material is his error of judgment in estimating the costs of the Iraq intervention as entirely manageable with the additional oil revenues from Iraq. This has been a fatal mistake, the like of which if carried over to IBRD can cause a serious setback to the institution.
An obvious riposte to criticisms about Mr Wolfowitz's lack of development experience is to cite the case of Robert McNamara, who also came from the Department of Defence after a not too glorious record at its head in managing the war in Vietnam. He was, to a large extent, responsible for the US' debacle in Vietnam although the roots of the disaster lay in policy failures emanating from decisions taken by President Kennedy.
But, with all that, Mr McNamara turned out to be a brilliant leader at the World Bank, though critics have been quick to point out that the Bank extended itself too much in McNamara's days and was responsible for over-lending.
The fact remains that contrary to his image as a "warmonger", a la Vietnam, Mr McNamara left an indelible impress on the World Bank as a person of compassion, devoted to human development and sympathetic to the cause of developing countries.
Whether it was a result of a feeling of remorse at manoeuvres, such as the ill-fated Operation Orange that defoliated Vietnam or the huge casualties that USA and Vietnam experienced in the conflict, the fact remains that the World Bank under McNamara emerged as a truly development-oriented institution. During this period, it helped India to initiate the process of growth and reforms.
True, even before he came to the Department of Defence, McNamara had the reputation of being a whiz-kid, a keen intellectual and a thinker on global issues. But, the McNamara who was thrust on the World Bank was known to most people only as an (almost) failed Secretary of Defence, whom President Johnson was only too willing to see the last of.
His elevation as President of the World Bank was, in effect, an order of the boot by the US President from the post of Secretary/Department of Defence. Is it likely that President Bush is similarly making the World Bank job a convenient exit point for his one-time favourite? This speculation has a few supporters, given the mysterious workings of Washington DC's power structure.
Whatever the motivation for Mr Wolfowitz's nomination an elevation or an ejection the choice seems inescapable now that it has been made. Europe has registered a gentle protest, citing its larger 30 per cent voting strength compared to US' 17 per cent. That Bush did not even offer it the privilege of consultation before announcing the nomination seems to have rankled in the minds of some Europeans.
Also working is the memory of the US' blackballing Germany's choice of Mr Caio Kochweiser, its Finance Secretary, for selection as Managing Director of IMF last year. Germany failed to have its choice accepted by the US. Whether Europe will do a repeat operation of blackballing Mr Wolfowitz is, however, unlikely considering that Europe is heavily dependent on USA for its trade and for geopolitical support.
It is fortunate for the world that the choice of the World Bank President is not as material today as it might have been one or two decades earlier. The flow of private funds, both portfolio and direct investment, has dwarfed many times larger than the aid that is distributed by the World Bank.
To this extent, the Presidency of the World Bank may even turn out to be irrelevant. Mr Wolfowitz will, as a result, find it difficult to use the World Bank aid to influence policies in the world's most populist countries India and China, which are today lending forex to the developed world instead of asking for aid.
The danger, of course, remains that he may be tempted to use his limited power to influence programmes and policies on the weakest of the developing countries which still depend on IBRD largesse.
I believe that Mr Wolfowitz has a crucial advantage in his closeness to the White House. This should help him in his new role. I believe that Mr Wolfowitz at the World Bank should not turn out to be an unmitigated disaster, as some critics have pointed out. While it is true it is an irrational choice, it can still turn out to be an advantage, given the fact that Bush has to choose from amongst his confidants and Mr Wolfowitz may better fit than many others.
Leading international journals, like The Economist, have pointed out that President Bush does suffer from a deficit of intellectual support, particularly in regard to economists. Mr Wolfowitz may be much better than an unguided missile, compared to persons like Secretary of the Treasury John Snow, who is both ignorant and incapable of being instructed. Mr Wolfowitz is definitely better than many other choices Bush could have made.
Considering the talented and untalented persons that have led the Bank up to now, Mr Wolfowitz may well turn out to be a surprise. He may, in fact, be a better fit at the World Bank than his immediate predecessor, Mr Wolfensohn, whose enthusiasm overran his capacity to manage.
Much depends, however, on the role that the caucus of the executive directors, who represent the developing countries, plays in the deliberations of the Board of the Bank. While they may not exercise a final voice on policy, they do play an important role in determining the profile of actions which the Bank President takes from time to time. The developing countries will do well to "beef" up the competence of the brigade of Executive Directors.
These EDs should no longer be superannuated bureaucrats of inconsequence, but true representatives of the developing countries on whose behalf they are located at Washington. Surely, the post of ED in the World Bank assumes greater importance now that the President of the USA considers it fit to thrust on the institution a person who is close to him ideologically, in terms of actual influence.
Overall, the choice of Mr Wolfowitz to head the World Bank presents new challenges not only for him but also for the world itself. Even as the new President gets to grip with the problems of development in the poorer half of the world, he will have to put on his thinking cap to distance his philosophy from that of shock and awe, which he practised in Iraq, to one of reconciliation and rehabilitation in the rest of the world.
He will also have to shed his doctrinaire dogmatism and contempt for the lesser mortals of the world, particularly the poorer countries. Whether such a change of heart will be possible or not is a billion-dollar guess. Hopefully, the challenges of the new job will bring out the best even from Mr Wolfowitz. Although Mr Wolfowitz may not turn out to be a McNamara, maybe he will turn out to be a good manager of the troops at the World Bank, effectively translating the World Bank policies to implementation at the ground level.
His record in Iraq in successfully completing the occupation and elections provides a paradoxical pointer to the possibilities that he may still offer a hope for the world. Mr Wolfowitz may not be a wolf at the door, but turn out to be an augury of a better future.
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