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02/05/2007 | Notes on a Scandal: How Ethical Are Paul Wolfowitz’s Detractors?

Bret Stephens

Meet Dennis de Tray. In the summer of 1998, the University of Chicago-trained economist had his 15 minutes of fame when, as director of the World Bank's mission in Indonesia, he was called by The Wall Street Journal to account for the bank's performance amid that country's economic collapse.

 

After 30 years and $25 billion of loans to the Suharto dictatorship, it turned out that "World Bank officials knew corruption in bank-funded projects was common, but never commissioned any broad reports tracking how much money was lost to it," according to Journal reporters Marcus Brauchli and Jay Solomon.

Why the relative indifference to the problem? Because, as Mr. de Tray explained at the time, "there is a trade-off between, shall we say, being pure and helping people," and also because "sometimes calling a spade a spade is not the best way" when it comes to confronting corruption.

Had matters rested there, Mr. de Tray, who still consults for the bank while working at the Center for Global Development in Washington, D.C., might never again have had his role in the Indonesian debacle reprised. Yet his name pops up as a signatory to a letter published on April 22 in the Financial Times under the headline, "For the good of the World Bank, Paul Wolfowitz should resign." The letter is meant as an indictment of the bank's controversial president, who may soon lose his job for a promotion and raise he authorized for his girlfriend, World Bank staffer Shaha Riza. But look closer and what emerges from the letter is a testament to the hypocrisy, or worse, of Mr. Wolfowitz's leading accusers.

In Mr. de Tray's case, it may seem strange that a man who was willing to countenance the theft of the bank's money by Suharto & Co. as the inevitable price of "helping people" (which people?) should now wax indignant about the damage Mr. Wolfowitz has supposedly done to the bank's "credibility as the international community's trustee of resources for fighting poverty," in the words of the FT letter. Yet Mr. de Tray is nothing if not consistent: Since leaving the bank last year, he has publicly objected to the "Puritan overtone in the current debate on corruption" and argued that Suharto's corruption "created value for Indonesia . . . just as Sam Walton created value for the U.S."--comments that nicely capture the quality of economic analysis at the bank as well as the prevailing in-house view regarding Mr. Wolfowitz's anti-corruption campaign.

Now consider the case of Shengman Zhang, a former No. 2 at the bank who is currently a vice chairman for the global banking division at Citigroup. Mr. Zhang, whose name appears third on the list of signatories, is the husband of Lingzhi Xu, a World Bank employee who began her career as an assistant working in procurement issues--a "Level D" position with a "market-reference point" of $52,000--and was ultimately promoted to her current job--a "Level G-G" high-level staff position with a reference point of $123,000.
Since Mr. Zhang was a managing director of the bank, his wife's employment presented significant similarities to the conflict-of-interest problem that required Mr. Wolfowitz to seek a new job for Ms. Riza, yet it never seems to have raised an eyebrow within the bank's management. Even more remarkable was the relative speed and ease of Ms. Xu's ascent.

"She did two things that are very unusual," says a World Bank source who asked to remain anonymous for fear of career reprisals. "First, she moved from a staff-assistant position to an analyst position. Generally that's very, very difficult. The technical requirements [for the analyst position] are usually quite specific. It's a promotion that needs to go to a sector board, and there are question marks about the process that was followed in her case. [Second], two-and-a-half years later she was promoted to senior procurement specialist. By any bank timeline this is a very quick progression."

Mr. Zhang, whose office did not return calls seeking comment, may be under the impression that his wife's arrangements will go unnoticed. And not just his: A 2005 report, prepared by the bank's Human Resource department, noted "there were 581 couples with 193 'potential for supervision' [conflicts-of-interest] between spouses." Yet about these cases next to no corrective action has been taken, according to bank insiders.

In a similar vein, it has also gone mostly unnoticed that among the letter's signatories is former HR vice president Richard Stern. Mr. Stern resigned from the bank in 2000 when his brother, Nicholas, was appointed chief economist, but only after coming under enormous pressure from the bank's staff association. At the time, then-bank President Jim Wolfensohn was inclined to wave off the staff's objections, observing at a press conference that while "you can't have brothers and sisters [working together at the bank, as president] you are entitled, under Article 5, to run the business as you want, and if you want to vary the rule, you can." (Emphasis added.)

The list goes on. Much has been made of the fact that the raise Mr. Wolfowitz accorded Ms. Riza--after his attempt to recuse himself was rejected by the Ethics Committee, and after he was required to resolve the matter himself, thereby forcing the very conflict-of-interest he had sought to avoid--means she now earns more than Condoleezza Rice's $183,500 salary. Less noted is that no fewer than 1,396 bank employees are at or above that pay grade, hardly putting Ms. Riza in an exclusive category by the standards of her peers.
Much has also been said about the role of Xavier Coll, the vice president for HR, who is supposed to have allowed Ms. Riza's raise and promotion without actually "approving" it. Bank insiders report that Mr. Coll now goes about with a blue ribbon on his lapel, a symbol of the staff's demands for Mr. Wolfowitz to go. How fashionable. But if Mr. Coll really believed the terms of Ms. Riza's package violated bank rules, he had a fiduciary responsibility to object and even resign. That he did not says nothing about Mr. Wolfowitz but everything about Mr. Coll.

As this column goes to press, it's unclear whether Mr. Wolfowitz's presidency will survive the week. So be it. Once the Wolfowitz "scandal" ends, we can begin looking in earnest at the real scandal called the World Bank.

Mr. Stephens is a member of The Wall Street Journal's editorial board. His column appears in the Journal Tuesdays.

Wall Street Journal (Estados Unidos)

 



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