World Bank set to finalise departure of defiant Wolfowitz

A defiant Paul Wolfowitz was last night on his way out as President of the World Bank - a departure that will bring an end to a messy and debilitating crisis that has damaged the credibility of both himself and the premier global development lending agency.

But a final line may only be drawn today under his controversial two-year tenure, when the Bank's 24-man board reconvenes to consider his fate. A dramatic series of meetings yesterday apparently failed to resolve details of a settlement.

The Bank's president "will not resign under this cloud, and he will rather put this matter to a full vote", Mr Wolfowitz's lawyer Robert Bennett said.

Even so, the ultimate outcome did not seem in doubt. The turning point came on Tuesday, when the board's opposition hardened with publication of a damning internal report. This found him in breach of Bank ethics when he arranged a promotion and handsome pay-rise for his girlfriend Shaha Riza, and accused Mr Wolfowitz of "disregarding" and "denigrating" the institution he was supposed to lead.

Yesterday the endgame in the six week drama began as the board, consisting of representatives of the Bank's member countries, met to approve the report. That alone would have amounted to a vote of no-confidence. But the board could have gone further, by making a formal statement of no-confidence, or even directly requesting his resignation.

However, discussions broke off at the request of the US, which on Tuesday for the first time had qualified its previously unequivocal support for the former deputy Secretary of Defence, who moved to the World Bank in 2005. As negotiations intensified, the board re-assembled after a four-hour break.

It is understood that Mr Wolfowitz would have to accept responsibility for errors in his handling of the secondment of Ms Riza to the State Department, in order to comply with the Bank's conflict of interest rules.

But the settlement would also include acknowledgement that the Bank's own confusing regulations were partly to blame. Mr Wolfowitz is adamant he acted in good faith, but was fatally entangled in ambiguous procedures.

Mr Wolfowitz has been fighting for his job since the first reports surfaced of the arrangements for Ms Riza early last month - on the eve of the annual spring meeting here of the Bank and its sister institution, the International Monetary Fund. As the dispute dragged on, pressure on him to depart mounted, fuelled by fears that the Bank would suffer irreparable damage. "We want this over, one way or another," a US official said yesterday.

In the end however the controversy over Ms Riza was little more than a pretext, that catalysed deeper grievances against Mr Wolfowitz, among them resentment of an imperious management style that had made him hugely unpopular among bank staff. Some European and other countries moreover have never forgiven Mr Wolfowitz, an ardent neo-conservative, for his role in the Iraq war.

In the last few days his position has become untenable. EU countries have indicated they might hold up funding of initiatives to alleviate poverty and forgive poor country debt if Mr Wolfowitz stays.Even the US accepts that, pushed to its limit, the confrontation would re-open old wounds among allies over Iraq at the worst possible moment.

Bluntest of all was Heidemarie Wieczorek-Zeul, development minister of Germany. She explicitly urged Mr Wolfowitz to resign. It was unclear whether any deal would also maintain the tradition whereby the World Bank chief is an American, named by the US President.

The assumption has been that foes of Mr Wolfowitz would accept this, for fear Europe would lose its traditional prerogative of choosing the managing director of the IMF.

An isolated figure

Contrary to a widespread belief, Paul Wolfowitz arrived at the World Bank in the spring of 2005 amid hope and no little good will. True, he had been one of the most ardent advocates of the internationally unpopular Iraq war. But, it was reckoned, he had the ear of the Bush White House, while his stint as US ambassador in Indonesia in the 1980s, seemed to give him experience and feel for the development issues. Sadly, it did not work out that way.

The mild-mannered Mr Wolfowitz brought with him vices inherent to the Bush administration: an inflexible conviction that he was right; and a habit of surrounding himself with loyalists. These latter quickly alienated experienced senior Bank staffers. As a result, Mr Wolfowitz found himself largely isolated.

He also brought the same blinkered approach to fighting Third World corruption that he applied to waging war against Saddam Hussein. Long established Bank lending practices were overturned.

The longer he stayed, the more it seemed he was bent on turning the global lending body into a policy arm of the Bush administration. The perks for Riza Shaha was a relatively minor transgression. But for Wolfowitz's enemies, it was just the weapon they needed.

Among his predecessors, the obvious parallel was Robert McNamara, Defence Secretary during the Vietnam war, who went to the Bank in 1968 and during a 13-year tenure became arguably the most influential president in its history. The difference was that Mr McNamara threw himself into helping the world's poorest as an act of atonement for Vietnam. Mr Wolfowitz had no such remorse about Iraq.