World Bank divided over Wolfowitz reforms

Hilary Benn's high-profile threat to withhold money from the World Bank has exposed a massive fault line within the power structure of the global financial body, it emerged yesterday.

Sources at the bank, whose mission is to eradicate world poverty, said member countries were seriously divided over its high-profile drive to eliminate corruption.

They accused Paul Wolfowitz, the bank's president, of driving a hard-line agenda on corruption backed by President George Bush, whom he served as the Department of Defense during the Iran and Afghanistan wars.

Officials said the remarks by Mr Benn, the UK's Development Secretary, would be taken up by other European countries at a meeting of the bank's Development Committee on Monday being held to discuss the corruption strategy.

The strategy paper had gone through four revisions after Europeans complained it was driven by a neo-conservative agenda.

Mr Benn used a keynote speech to criticise the bank for concentrating on corruption at the expense of its wider fight against poverty and disease. He also threatened to withhold £50m of aid money from the Bank unless it showed proof that it had ended the practice of attaching tough economic conditions to its grants and loans.

One source described Mr Wolfowitz as "preemptory, high-handed and arbitrary" and accused him of pursuing his agenda with "messianic zeal", adding: "The Brits are coming with a belt to lay about the hindquarters of Wolfowitz."

Another said there was still a lot of suspicion over what the real agenda was. "People thought they knew when the appointment was made - and when John Bolton was appointed to the UN - that it was an attempt by the US Administration to get their kind of people in these organisations. That's still the suspicion." He said several European countries including France and Germany were worried the corruption process was "arbitrary" rather than "securely tied" to development. "It can't be arbitrary because it comes down 'I don't like country X but I like country Y' and I think we've seen that with Pakistan [a close ally in the Afghan war].

"What people are concerned about is the single minded approach and they are concerned about the lack of listening. There is big unease about the leadership and where it is going."

He contrasted Mr Wolfowitz's concern over corruption with the situation in Iraq, which he described as the "most corrupt reconstruction effort in history".

Yesterday Mr Wolfowitz sought to build bridges with the UK, saying he shared Mr Benn's concerns. He highlighted the record of G8 countries on aid payments, where the UK excels.

Asked to respond to Mr Benn's comments, he said: "I don't think there's a row and I don't think it is out of control. Mr Benn and I are in complete agreement that the World Bank in the past has been too full of prescriptions for countries about what they had to do and too inclined to force prescriptions on them."

He said he could see no difference between the UK's and the Bank's stance on corruption. "Tackling corruption is very important [and] the way you do it is not by punishing and withholding money. The way you do it is by engaging by helping countries strengthen their system for dealing with these problems by working with civil society organisations that will support transparency and accountability."

He used his speech to deliver a sideswipe at members of the G8 rich nations that had not delivered on pledges at the Gleneagles summit last year. "The donors are in danger of falling short on that promise and I would urge them to step up their efforts."