Wolfowitz quits as World Bank chief (Roundup)

By Tony Czuczka May 18, 2007, 0:02 GMT

A file picture dated 15 April 2007 shows World Bank President Paul Wolfowitz listening to questions during a press conference at the International Monetary Fund in Washington, DC. World Bank President Paul Wolfowitz announced his resignation 17 May 2007 effective 30 June 2007 a World Bank statement said. EPA/BRENDAN SMIALOWSKI

Washington - World Bank President Paul Wolfowitz announced his resignation Thursday less than halfway through his term, capping weeks of bitter conflict at the aid agency over a pay raise he arranged for his girlfriend.

Wolfowitz said it was time for the 185-nation lender 'to move forward ... under new leadership' and said he would step down June 30, according to a statement by the bank's board of directors.

'The board will start the nomination process for a new president immediately,' the bank statement said.

The decision followed three days of marathon meetings to negotiate an exit for the former US deputy defence secretary, after a scathing internal report found that Wolfowitz broke bank staff rules with the 2005 promotion for his companion, Shaha Riza.

In a carefully crafted statement, World Bank directors did not fault Wolfowitz, noted his insistence that he broke no ethics rules and said the bank's internal rules and standards needed review to prevent future problems.

Wolfowitz, 63, has acknowledged mistakes but denied wrongdoing. He had pressed the bank's board to clear his name before he would consider quitting.

He had lost support of a majority on the board, where the US has one of 24 seats, a World Bank official said Thursday. But his foes apparently wanted to avoid a vote that would risk exposing a trans- Atlantic split.

The uproar over Wolfowitz opened a rift between the US and the European countries seemingly intent on ousting him.

A key planner of the US-led war in Iraq, Wolfowitz has been a polarizing figure at the bank since Bush nominated him in 2005 for a five-year term to lead its fight against poverty and disease.

Bush earlier Thursday signalled that time was running out for his former aide.

'I regret that it's come to this,' he said. 'All I can tell you is I know that Paul Wolfowitz has an interest in what's best for the bank.'

Wolfowitz focussed on two areas during his tenure: fighting corruption worldwide and aid to Africa, both of which won him enduring support from some African countries.

But member governments forced him to scale back the anti- corruption drive after some countries complained that penalties imposed by the bank were arbitrary.

He also angered World Bank staff by sidestepping senior managers with top aides brought in from the Bush administration. Wolfowitz's push to boost the bank's role in rebuilding Iraq prompted charges that he was doing Bush's bidding.

German Development Minister Heidemarie Wieczorek-Zeul, speaking for the European Union, said this week that she had little confidence that Wolfowitz could lead the drive to secure 30 billion dollars in new World Bank aid for the poorest nations for 2008-11.

Wolfowitz has accused his foes of a 'smear campaign' designed to drum up pressure for his resignation on 'bogus' ethics charges.

The Wall Street Journal, a staunch supporter, has called the drive to oust him a 'European coup attempt' by rich-nation politicians and bureaucrats upset by his focus on corruption and on 'results' in development aid.

The US is the bank's largest contributor. Still, Washington commands only a 16.4 per cent share-holding, leaving it increasingly isolated as support for Wolfowitz ebbed among senior managers and the bank's staff association called for his removal.

Wolfowitz would be the first World Bank president to resign under a cloud since the bank was founded in 1944 to help Europe and Asia rebuild after World War II. His exit could revive debate about the unwritten rule that the US chooses the bank's head.

The Bush administration shifted ground this week and opened the way to Wolfowitz's possible departure, proposing a broad review of his leadership in which 'all options are on the table.'

But with leading European governments highly critical of Wolfowitz and apparently intent on a quick end to the crisis, any plan that would let him stay on for an undetermined period was a tough sell.

At issue is a hefty pay raise that Wolfowitz directed for Riza, three months after he became bank president in June 2005.

Riza, 52, was loaned out to the US State Department to avoid a potential conflict of interest but was kept on the World Bank payroll.

Wolfowitz says he was broadly following suggestions by the bank's ethics committee, which suggested that he take the matter in hand.

But a panel of seven directors found that he violated staff rules and his employment contract when he ordered a pay and promotion package for Riza that boosted her annual salary by 36 per cent to 180,000 dollars and guaranteed yearly raises of 8 per cent.

The bank's staff association says the raise was nearly twice as high as allowed under bank rules and weeks ago urged Wolfowitz to resign.