Weathering the Latest Storm

Paul Wolfowitz picked the wrong fight. The former US Deputy Secretary of Defense, a key figure behind the George W. Bush administration's decision to go to war in Iraq in 2003, was always going to be a controversial tenth president of the World Bank Group when he succeeded James Wolfensohn in June 2005. Like his predecessor, Wolfowitz resolved that fighting corruption would be a top priority for the Bank under his leadership. This would set him up for charges of rank hypocrisy when, just two years later, he was forced to resign amid a personal ethics scandal1 and widespread opposition from Bank managers (DeYoung and Kamen 2007).

But well before his presidency ended on that sour note, Wolfowitz committed a key tactical error by provoking an unnecessary crisis in the Bank's relationship with India. In 2005, Wolfowitz unilaterally suspended a loan for a major health project in India – US$850 million for the second phase of an ongoing Reproductive and Child Health (RCH-II) project – in response to allegations of fraud and corruption in the procurement process (Padmanabhan 2006). Summing up the significance and the boldness of the move, Sebastian Mallaby wrote in The Washington Post, “This is a vast sum, and India is one of the bank's most formidable clients: It borrows a lot, has a good economic record and tells development organizations to get lost if they behave condescendingly.