Hirsh: World Bank Saga Causes Political Rift

It’s one of those musty, neocolonial traditions dating back to the World War II victors’ club. The two big institutions invented at Bretton Woods, N.H., to resurrect the global economy—the World Bank and International Monetary Fund—were supposed to be run by those winners, no questions asked. The Americans would get to choose the president of the World Bank, and the Europeans would pick the head of the IMF. So it went for 62 years, even as the rest of world emerged from colonialism, the Soviet bloc and poverty, developed powerful economies of their own, and joined the international system. But the monthlong scandal over Paul Wolfowitz, who on Thursday became the first World Bank president in history to be forced out, may now be casting a harsh new light on this hoary tradition.

At least Henry Paulson, the U.S. Treasury secretary, seems to think so. Paulson is believed to have the main responsibility for selecting Wolfowitz’s successor. But early signs are that Paulson, the former chairman of Goldman Sachs—one of the most internationalized investment banks on Wall Street—may have his own ideas about how to proceed. As he prepared to make a round of overseas calls, he told reporters, "I will consult my colleagues around the world as we search for a leader." Paulson didn’t say so, but the statement seemed to open up the possibility that a non-American might be considered for the first time. (What international finance minister would suggest an American after the Wolfowitz debacle?) And Paulson’s tone didn’t jibe completely with a statement the same day by Tony Fratto, the White House spokesman, who told reporters: "Traditionally, the American nominee has become the World Bank president. We want to move swiftly in this process."

The discordance between those two statements was only the latest sign that the Wolfowitz saga has created a rift between the Bush White House and Paulson's revamped Treasury Department. According to a source familiar with the White House strategy but who would comment on internal discussions only on the condition of anonymity, “There was a disconnect between the Treasury and the White House about how hard to fight for Wolfowitz. Paulson didn’t really go to war for him, and that upset some senior people at the White House”—including strategist Karl Rove, Vice President Dick Cheney and possibly President Bush himself. The pro-Wolfowitz faction saw the dispute as a European power play to take control of the Bank. But Paulson, it is thought, divined early on that Wolfowitz was doomed by the scandal, which involved widespread outrage over a quiet pay-and-promotion package he arranged for his companion, Shaha Riza, even as he launched a zealous anticorruption campaign at the Bank. The source said that some officials in the White House believe Paulson did “too little, too late” to call his counterparts in finance ministries in Europe and lobby them to restrain the Bank’s European executive directors, who were pushing for Wolfowitz’s ouster. The White House did not immediately respond to a phone call asking for comment. A Treasury Department spokeswoman referred all such questions to the White House, adding : "Secretary Paulson feels strongly that Paul Wolfowitz is a dedicated and honorable public servant, and he made every effort to get him a fair process and a fair outcome."

At the time he was appointed a year ago, Paulson was seen as a great get for the Bush team—especially his former colleague at Goldman, White House chief of staff Josh Bolten. Paulson was, after all, a star of global finance who was succeeding two undistinguished Treasury secretaries, Paul O’Neill and John Snow. But reportedly one of the conditions that Paulson laid down for accepting the job was more independence and a more central role in policymaking than his predecessors had. He may have achieved just that.

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