Wolfowitz's career hangs by a thread

PAUL Wolfowitz, the president of the World Bank, was facing dismissal last night after a scathing report accused him of breaking ethics rules when he arranged an improper pay rise for his girlfriend, Shaha Riza.

The report, released earlier this week, said Mr Wolfowitz broke a series of regulations governing internal conduct in an affair being dubbed "Riza-gate".

Mr Wolfowitz was one of the key architects of the Iraq war and a leading member of the Bush administration until he moved to take over the bank in 2005.

The controversy marks the climax of a stormy tenure at the bank which has seen American and European board members at odds over the direction of the world's top development agency.

European governments yesterday stepped up the pressure for him to resign, with the European Union urging a quick decision by the board. Germany has already called for Mr Wolfowitz to step down.

But the United States, which holds the lion's share of votes in the bank, was standing by its man, with Tony Snow, the White House press secretary, declaring: "We've made clear that we support Paul Wolfowitz. Furthermore, he has said - and we agree - that certainly a lot of mistakes were made in the personnel process. But it's not a firing offence."

Wolfowitz supporters say he is a victim of a witchhunt being orchestrated as part of an on-going war between the United States and Europe over the direction of World Bank policy.

He first met Ms Riza in Washington in the 1990s. They seemed an unlikely match: Ms Riza was born in Tunisia, raised in Saudi Arabia and was an advocate of women's rights. Mr Wolfowitz was a supporter of Israel and a member of right-wing think-tanks.

But the couple found common ground in their support for democratic change in the Middle East and they moved in together after both left their spouses.

When Mr Wolfowitz was moved from the Pentagon to head the World Bank in 2005, Ms Riza was already working there as a Middle East analyst.

Immediately the new president contacted the bank's ethics committee, asking for guidance on how to work with her.

Its advice was unequivocal: she could not work for him without breaching guidelines on married couples working together. It was Mr Wolfowitz's solution to the problem that has blown up in his face.

He arranged for Ms Riza to be transferred from the bank to work for the US State Department (though she stayed on the bank's payroll) and recommended that she be paid the same salary so as not to lose out as a result of the move.

Additionally, because she was in line for a promotion at the bank shortly before she left, Mr Wolfowitz decided she should be paid the money she would have received had she stayed on. Her pay was further topped up with an 8 per cent annual pay rise.

This netted her a salary of $193,000 (£97,000) and caused a storm when it was reported earlier this year that she earns more than the $186,000 (£93,000) of her boss, Condoleezza Rice, the Secretary of State.

All might still have been well, but Mr Wolfowitz had also begun to antagonise bank staffers with his robust approach to the job.

He brought in two advisers from the Pentagon and White House on high salaries to help him run the bank.

Several governments were reportedly angry after he launched an anti-corruption drive to prevent government officials from poor countries from skimming money from World Bank contracts.

And bank insiders complained that the anti-corruption drive was selective, and that big contracts went to Afghanistan, Iraq and Pakistan despite reports of rampant corruption in these states. At issue also was Mr Wolfowitz's ideology: for years an opponent of multi-lateralism, he long advocated a neo-conservative policy of Go-It-Alone for the US, arguing that international agreements only tied Washington down. Many European states, who share control of the bank with the US, feared the bank's role was in jeopardy.

The bank's own investigation found that he exhibited "questionable judgment and a preoccupation with self-interest" in giving Ms Riza her pay rise.

It accused the president of breaking three separate staff codes, in addition to his contract and the bank's own code of conduct.

And, crucially, it accused Mr Wolfowitz of trying to hide this pay deal from bank officials by going "well beyond" what the ethics committee had originally recommended.

"Mr Wolfowitz's contract requiring that he adhere to the code of conduct for board officials and that he avoid any conflict of interest, real or apparent, were violated," the investigating panel said.

Mr Wolfowitz called the findings "unbalanced and flawed" and argued that the panel had omitted statements and documents that support his position. And his lawyers insist that he acted openly and followed the ethics committee guidelines.

But the report seems to indicate that the damage is already done, concluding that the controversy, added to Mr Wolfowitz's abrasive style, has alienated bank officials and demoralised the institution.

With key economic meetings of the G7 group of industrialised nations coming up this summer, bank officials fear that if Mr Wolfowitz remains in office, the bank will be holed below the waterline.

If he is forced out, it will mark the end of the career of the man once seen as one of the three "high priests" of the Bush administration, along with former defence secretary Donald Rumsfeld and vice-president Dick Cheney. The three, who worked with each other in Republican administrations from the Nixon years, were pioneers of the so-called neocon strategy that advocated pre-emptive wars against possible aggressors.

That strategy appears to have hit the buffers at its first outing, the war in Iraq, and Mr Wolfowitz's reputation suffered.

The controversy over his treatment of his girlfriend may prove equally damaging for his career.

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