Global Policy Forum

By Bruce Stokes

James Wolfensohn, who today starts his second term as president of the World Bank, is still, after five years in office, an enigma. He's a sackcloth visionary in banker's clothing. He's a big-idea man whose tenure will ultimately be judged by how he micromanages the bank's 11,000-person bureaucracy. And although he has charmed some of the bank's severest critics, he is feared by many of those who work for him.

Detractors and supporters alike agree that the 66-year-old Wolfensohn, a native Australian and former Wall Street investment banker, is the best World Bank president since the fabled Robert McNamara. Wolfensohn has a formidable first-term track record. He sharpened the bank's focus on alleviating poverty, decentralized the institution and improved coordination with other international development agencies.

Yet there is an appreciable gap between Wolfensohn's rhetoric and the realities of the bank. Wolfensohn has yet to break and redirect the bank's distinctive -- and, critics say, sometimes devastating -- lending culture, which has long placed a premium on pushing money out the door, whatever its impact on the Third World. Nor has he resolved the bank's fundamental challenge: streamlining its bureaucracy.

"The change in culture is not yet complete," Wolfensohn acknowledged in a mid-May interview. "But we are making the place more anxious to listen, more anxious to be a good partner, more anxious to be effective." All of this will take time. The final judgment on Wolfensohn's tenure must take into account the successes and failures of his second term.

Notwithstanding the Washington street protests in April during the bank's spring board meeting, "Wolfensohn has done a masterful job of reinventing the image of the bank," said a former bank official. Even many of his critics agree that Wolfensohn is genuinely committed to social justice. "There is a discernable shift in the orientation of the institution, both in tone and in policy," notes an official with a major nongovernmental development organization. But, said the former bank official, "when you get down to the serious, complex problems of development, I don't think that Wolfensohn has managed to help the bank to find a better way."

Like every recent bank president, Wolfensohn attempted early on to reorganize the place. He broke down bureaucratic walls between bank operations, reshuffled personnel, shipped country directors overseas, and set new reporting procedures. To accomplish all of this, Wolfensohn struck a "strategic compact" with the bank's board of directors, wresting more money from them in return for his promise to produce a leaner bureaucracy. Wolfensohn must deliver on his end of the deal this year.

But the bank's refocusing is stymied by an internal contradiction that is, in part, of Wolfensohn's own making. Responding to the needs of developing countries, the bank has shifted its lending priorities from steel-and-beam infrastructure projects to social lending. Moreover, Wolfensohn has never met a development challenge he didn't want to tackle. So at a time when the bank's underwriters -- in Europe and the United States -- are demanding cost saving, staff cuts, and greater effectiveness, the institution is engaging in activities that are more personnel-intensive and can have high failure rates.

"That contradiction is unresolved at the moment," admitted Wolfensohn. His failings as a manager have compounded the situation. No one could transform an institution packed with self-important international economists without riling some egos. But Washington's development community is rife with tales of Wolfensohn's management by terror and verbal abuse of the bank's staff.

Consequently, both his critics and his supporters lament, Wolfensohn has become increasingly isolated, cut off from the bad news that people long ago learned was career-threatening for them to bring him.

"I was too much in a hurry and teed off with my inability to get things done," Wolfensohn acknowledged. "I used to blow up very quickly, more than I should. I have made a real conscious effort to modulate my behavior."

The tragedy, observed one former bank official, is that Wolfensohn is unable to use his personality, which has won over many of his outside critics, to charm, motivate, and energize his own staff.

Wolfensohn can't rely solely upon his considerable personal magnetism if the bank is to cope with the challenges that lie ahead. Capitol Hill has been relatively quiescent in the last year, but that lull may soon pass. The congressionally appointed Meltzer Commission called this spring for the bank to make fewer loans and more grants -- a revamping that could be the start of greater legislative oversight. Further, the bank's recent decision to make a loan to Iran over US objections may further fuel the congressional fire.

Most important, the bank faces an inherent challenge. It has long prospered on high-yield infrastructure projects. But as the bank increasingly shifts its loan portfolio to lower-yield social projects, how does it stay in the black and in the good graces of its donors, which are increasingly reluctant to offer new financial support?

Jim Wolfensohn's first five years have been rocky but, in many ways, exhilarating. The next five will prove whether he has tamed the beast that is the World Bank.

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