This week marked the end of Australian-born James D. Wolfensohn's tumultuous presidency of the World Bank. Former US deputy secretary of defence Paul Wolfowitz will replace him. So what is the Wolfensohn legacy and what are the challenges facing his successor?
Putting it charitably, Wolfensohn leaves the World Bank with a mixed legacy. There's no question that he did some things right. His focus on corruption was an important step forward. Under Wolfensohn, corruption was identified and confronted as a significant obstacle to development and economic growth in the developing world.
Another positive was his decision to decentralise the World Bank. Before his time, everyone and everything came from headquarters in Washington; even country directors were ensconced there. He decentralised staff away from Washington, particularly to recipient countries.
Wolfensohn also was responsible for getting the bank to upgrade its technology to bring it into the internet age and link it with client states more effectively.
On the negative side, perhaps the main criticism of Wolfensohn's reign is that it has left the bank without a clear focus.
As Georgetown University's Theodore Moran notes in the latest issue of Foreign Policy: "The criticism that the World Bank does not have any priorities is misplaced. The real problem is that every country director and country strategy team at the bank have 20 No. 1 priorities."
Much of this can be attributed to Wolfensohn's tendency to jump on the latest fad and to please every powerbroker.
Wolfowitz's main challenge will be to cull these priorities and resist calls to widen the World Bank's mission.
Another criticism of Wolfensohn's tenure has centred on his lack of emphasis on economic growth. As former World Bank economist William Easterly commented recently: "Somehow in the (past) few years it became kind of politically incorrect to talk about growth in the bank and one could only talk about poverty reduction."
This has been confirmed in the past few weeks with the release of a report by the World Bank's internal watchdog unit, the operations evaluation department, which found that the bank "paid insufficient attention to issues of growth".
During Wolfensohn's time at the helm, financing for infrastructure such as dams, roads, bridges, pipelines, irrigation, rural electrification -- which had been its focus for decades -- was cut dramatically. Project lending by the bank declined by 40 per cent during his reign.
Instead, the bank spent big on social projects ranging from health to education and on more exotic issues such as climate change and "empowering the poor".
The reality is these projects were, in the main, sanctioned for political reasons rather than because of their effectiveness, let alone because of the desires of the bank's developing-country clients.
Writing in the Financial Times, development economist Jagdish Bhagwati observed that the approach legitimised Wolfensohn throwing money around, like Eva Peron, on peripherals such as culture projects, thereby enabling him to extend his patronage to all and sundry.
The questionable nature of these projects is evident in the recent internal report that found the World Bank's health and education programs had "fallen short of bringing about qualitative and sustainable improvements in human development outcomes such as better learning achievement and improved health status".
Wolfowits's challenge will be to refocus the bank on economic growth and pull back from some of the irrelevant social programs. This won't be easy because under Wolfensohn the World Bank adopted cumbersome environmental and social safeguards or red tape on the projects it financed, so much so that the Wolfensohn era is arguably best known for the high-profile projects that it scuttled due to pressure from Western activists rather those it funded; all of which is covered superbly in Sebastian Mallaby's book The World's Banker.
The high compliance costs, the slow pace of decision-making and tendency of the bank to cave in to pressure from Western activists and non-government organisations resulted in many of the bank's best developing-world client countries such as China, India and Brazil abandoning the bank in favour of private capital markets.
Though there have been signs of a change in the past few months, Wolfowitz is going to have to seriously evaluate his relationship with NGOs and other activists.
Precisely how Wolfowits will run the bank is difficult to say. Though his leading role as an architect of the war in Iraq has led him to be portrayed as a hardline conservative hawk, this is little more than a useless caricature. Wolfowitz is a far more complex character than this.
While Wolfensohn has been described as a "force of nature" by Mallaby and is renowned for his drive, energy and charisma (an image Wolfensohn likes to cultivate), Wolfowitz is more academic and thoughtful.
Whereas Wolfensohn was known for his rather chaotic and erratic management style and temper, Wolfowitz is a competent administrator, having been Donald Rumsfeld's deputy at the Pentagon, and is more than adept at managing a large and unwieldy bureaucracy, which the World Bank is.
To succeed, Wolfowitz, in part, will have to turn back the clock to a time before Wolfensohn became head of the bank.
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