The system of three supposedly equal directors was created by the bank's current president, Lewis Preston, partly to curb Stern's enormous power within the organisation. It did not work. Stern swiftly reasserted his authority and is now regarded - inside and outside the bank - as the man who runs the show.
Now it looks as if he will be moving from Washington to London to run the European Bank for Reconstruction and Development - or, if we are to believe the leaks from some of the EBRD's shareholders, to be number two to the bank's beleaguered president, Jacques Attali. If Stern came in as deputy, however, it is hard to believe that Attali's leadership of the bank would not, in effect, be cut short. If there is one thing that everyone who has worked with Stern agrees on, it is that he is a man who knows his mind and gets his way.
This is not Stern's first brush with the European Bank. He was frequently in and out of the new institution during 1990, when Attali was first choosing his staff. The job of deputy to the president was on offer, but after lengthy negotiations Stern turned it down. Some of his associates said he had come to loathe Attali, a French intello with big ideas and big pretensions that clashed with Stern's own low-key, practical approach. Others pointed out that there was little reason for him to move. Already the de facto power at the World Bank - the biggest development agency there is - why would he move to a small new organisation where he would not even be the boss?
He may already have accepted the job, however. If he goes to the EBRD, it is almost certainly not for the money, although he is said to have been tempted with a tax-free salary of pounds 250,000 (considerably more than he would be earning at the World Bank). 'If he wanted money he could have earned millions on Wall Street by now,' says a World Bank colleague. It may be partly that he believes that he will soon succeed Attali, who has never been very popular with the EBRD's Group of Seven shareholders and may now finally be on the way out.
But it is probably also to do with his genuine belief in the value of development banking and a basic desire to make the world a better place. 'He's not a bleeding-heart developmentalist, but he is committed to his work,' was the verdict of a colleague.
Stern could hardly have begun life in less auspicious circumstances: he was born in 1933 in Frankfurt and his family was Jewish. After an unsettled period, the Sterns moved to America and settled in New York, where Ernie trained as an economist. He joined the US Department of Commerce in 1957 - the same year he married his wife, Zina - and soon moved to the Department of Aid for International Development. He entered the World Bank in 1972 as a protege of Robert McNamara, its charismatic president, working for several years in the bank's Asian department. Six years later, he was elevated by McNamara to vice-president of operations, which put him in charge of virtually all the bank's lending. This made him not only one of the two or three most powerful men in the bank but one of the most important bankers in the world, controlling annual lending of dollars 20bn to dollars 25bn and a total loan portfolio of around dollars 300bn.
In 1987, he moved to become vice-president in charge of finance. He quickly became a leading figure on the international bond and currency markets for his innovative fund-raising exercises for the bank. The job offers from Wall Street came flooding in, but Stern rejected them all.
For 15 years, therefore, he has been a guiding light in one of the world's most respected and bureaucratic institutions - and it suits him perfectly. If anyone was born to be a civil servant, it was Ernie Stern. 'Low-key' is for him a way of life. Even his entry in the International Who's Who describes him blandly and unhelpfully as an 'American international official'. He is familiar to bank employees as a short, square-built and somewhat ferret-like figure; greyish, with glasses, always dressed in dark, sober suits, plodding through the corridors of the World Bank with a slight stoop and glint in his eye. 'He never seems to be in a hurry,' says a colleague.
He has a civil service mandarin's obsession with operating quietly behind closed doors without publicity or fuss. His public pronouncements tend to be dry and uninformative. He also has the mainstream cultural tastes of a mandarin - he loves music and is said to have a room full of compact discs. He likes paintings and his office at the World Bank is strewn with coffee-table art books. Convivial and gregarious, he still keeps his private life very private. 'He probably leads a modest, blameless kind of life with a house in the suburbs, but frankly few people know much about it,' says a World Bank insider.
The Stern legend was created during his period as head of operations. He is regarded in the bank with a mixture of awe, respect and terror. 'When I joined the bank I was told that when I went to a meeting with Stern I should make sure I had read all the relevant documents,' says a bank official. 'Stern would be the only other person who had.'
'In a place where information is power, Stern always has both,' says an insider. Heads of department were always astonished to find that Stern seemed to know as much about their fields as they did themselves.
'He has an extraordinary capacity for knowing what's going on,' says a colleague. 'That is a powerful position to have in an organisation which virtually no one else can understand.'
No one disputes therefore, that Stern is the supreme professional, an operator who cuts decisively through the endless debate in the bank and gets things done. 'Stern is an extraordinarily able man - one of the ablest I've ever met. He has a first-class intellect,' says a retired bank director. He is a tough, even ruthless arguer, which means that he almost always gets his way.
But another reason why subordinates need to have read all their documents is that people who do not keep up with Stern tend to get trampled on. 'I've seen him almost eat people alive,' says a colleague. 'If he sees people making a mess of things, he will have a go in public at them. Naturally, people resent that.'
Stern has plenty of detractors at the bank because of this willingness to humiliate people publicly. If he does move to the EBRD, some of his old colleagues will not be unduly sad to see him go. Recently, moreover, his formidable reputation at the bank has been badly dented. It is becoming clear that much of the bank's lending during the 1980s has gone seriously wrong, and the quality of its loan portfolio is steadily deteriorating.
The worst of these gaffs is probably the multi-billion-dollar Narmada dam project in India, which has turned into a scandal of unprecedented proportions for the bank. The bank was to have invested dollars 500m, but after years of controversy and delay it has been forced to pull out. Inside and outside, people are beginning to ask who was ultimately responsible for these mistakes. Uncomfortably often, the answer is Ernie Stern.
His reputation for always having the answers, therefore, is diminishing. As the bank's international reputation sinks, Stern is held partially responsible by insiders, which does not make him popular. He is also seen as having stalled efforts at reorganising the institution in the wake of its mistakes.
And his civil service instincts seem to have asserted themselves through a reluctance to allow the bank to present a more open face to the world, which might have helped to staunch some of its bad publicity. When there has been public criticism of the bank by its shareholders, Stern has been furious. These are matters to be discussed in private, he believes, not in front of the bank's staff and the public.
But Stern has another and perhaps more serious weakness, according to some who have worked with him. Although he has strong opinions he is, like most civil servants, short on vision. This is one reason his partnership with McNamara worked so well. His boss was the philosopher and theorist, while Stern handled the operations and was brilliant at detail. They complemented each other perfectly. Stern's relationships with subsequent bank presidents - who have tended to be a little weak on vision themselves - have never been as good. Stern himself has not been personally identified as the architect of specific policies at the bank. Instead, like a good civil servant, he sees his job as carrying out the wishes of his masters.
For some, this raises a question over the wisdom of inviting him to the EBRD. If he could work with Attali, the two men might complement each other well. 'Attali has got vision, but he hasn't got much clue how to put it into effect,' comments a senior World Bank official. A civil servant of Stern's stature and authority could be exactly what is needed as Attali's deputy to keep the EBRD's feet on the ground and to get it operating effectively.
But what if Stern takes over, sooner or later, as EBRD president? Some of his critics wonder whether he has enough vision to guide the still-fledgeling institution to a clear idea of what it is and what it should be doing. That, after all, will be the most important role of the EBRD's senior management in the next few years, because without it the bank cannot justify its existence to its increasingly sceptical G7 shareholders.
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