Wolfensohn Failed in his Objectives

The Australian-born president of the World Bank James Wolfensohn has announced that he will probably retire from the Bank in June of this year after his ten years at the helm.

Wolfensohn leaves at a time of apparent opportunity for the World Bank, with the War on Terror, Millennium Development Initiative and the Asian tsunami having generated renewed interest and increased budgets for foreign aid.

Wolfensohn came to the job from a glittering private banking background determined to improve the performance of the Bank and to placate its many critics on the left.

Placating left wing critics meant recruiting western non-government organisations (NGOs) as stakeholders, often effectively giving them a "veto" over particular projects.  This undercut his efforts to improve performance.

From the start the stakeholder engagements was highly controversial within the Bank.  US Treasury Secretary, Larry Summers, formerly the Bank's chief economist described Wolfensohn's NGO engagement strategy as "inimical to the goal of progress and the goal of reducing poverty around the world".

The program of engagement with NGOs also angered the bank's more creditworthy borrowing nations, especially China and India, which have in recent years turned elsewhere for loans.  These major borrowing nations, were dismayed at the NGOs influence in stopping funding on dams, bridges and roads and focusing instead on social and political causes.

Wolfensohn increasingly gave into the NGOs.  As a result, there has been a 40 per cent reduction in large infrastructure loans during his ten year term.  As the Financial Times diplomatic correspondent Stephen Fidler in his Foreign Policy article on the bank wrote:  "critics charge that, under pressure from NGOs and other interest groups, and as a result of his own insecurities, Wolfensohn has surrendered the World Bank's intellectual integrity, rushing to embrace the latest fads in development thinking regardless of their substantive merit".

Nowhere was this more evident than in his Comprehensive Development Framework (CDF) launched in 1999 which was described as a "holistic" approach to development and which included just about every conceivable approach to development ever dreamt up.

The bank's staff association newsletter referred to it as "confusing, meaningless and stuffed with every cliché that has been uttered in the last two years ..."  As respected development economist Jagdish Bhagwati noted, "Mr Wolfensohn's deepest error with the CDF was his argument that everything mattered", which he argued made little sense because "if everything matters, nothing does".

Lack of priorities led to the Bank being perceived as rudderless and lacking focus.  Eventually this conspired with Wolfensohn's rather erratic and chaotic management style to bring an exodus of the bank's most capable executives.

The Bush Administration wants the bank to be more strategic in focus and return to its more traditional role of financing infrastructure and generating economic growth.  Those engineering Wolfensohn's demise are not doing so for reasons he claimed during a recent visit to Australia, namely an "outspoken advocacy" on behalf of the poor and dispossessed.  In fact Wolfensohn's time as head of the World Bank is coming to an end because that is precisely what he failed to do.

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