Wolfowitz defiant as World Bank crisis lurches toward climax
May 16, 2007 - 9:39:27 AM

Washington, May 16 - World Bank President Paul Wolfowitz denied misconduct at a hearing with the bank's directors, while outlines emerged of a possible deal to let him dodge the charges.

In a much-anticipated showdown with the 24-member board, the former US deputy defence secretary late Tuesday rejected the conclusions of an internal inquiry that found he broke ethics rules in arranging a hefty pay raise for his girlfriend.

'We presented to them overpowering evidence that he acted at all times in the best interests of the bank and in good faith,' Wolfowitz's lawyer Robert Bennett told reporters afterward. 'So I'm feeling very good right now.'

The board was expected to deliberating on Wednesday, extending an impasse that has pitted European governments outspokenly critical of Wolfowitz against US President George W. Bush, who tapped the co-architect of the Iraq war to head the World Bank in 2005.

But the White House signalled a shift Tuesday that may point the way toward a settlement between the bank and Wolfowitz, who has vowed not to quit under 'bogus charges' that he acted unethically.

Comments by US officials suggested that a deal could involve the board closing the ethics inquiry without demanding Wolfowitz's resignation.

Instead, the bank would open a broad review to decide whether Wolfowitz is still fit to lead the 185-nation development agency.

'At some point in the future there are going to be conversations about the proper stewardship of the World Bank,' Bush's chief spokesman Tony Snow said Tuesday. 'In that sense ... all options are on the table.'

He refused to speculate whether that includes Wolfowitz's removal at a later date.

Wolfowitz 'made mistakes' in handling his companion's promotion, but these were not 'firing offences,' Snow said.

The review would likely study whether Wolfowitz retains the credibility and the political capital to run the bank, including whether he can secure donor support for plans to boost aid to the poorest countries, a bank official said.

German Development Minister Heidemarie Wieczorek-Zeul, whose government is among Wolfowitz's sharpest critics, strongly hinted that he would fail such a test.

'A strong World Bank president is needed to mobilize the money,' she said after talks with European Union counterparts in Brussels. 'We development-aid ministers know how to speak diplomatically and still get our message across.'

At issue is a promotion and hefty pay raise for Wolfowitz's girlfriend, Shaha Riza, implemented three months after Wolfowitz became bank president in June 2005. She was loaned out to the US State Department to avoid a potential conflict of interest but kept on the World Bank payroll.

Wolfowitz, 63, says he was following suggestions by the bank's ethics committee and has accused foes of mounting a smear campaign to force him out.

Pressure mounted for him to quit after the bank's investigating panel Monday issued a highly critical, 52-page report.

Wolfowitz 'violated' the bank's code of conduct and staff rules, provoked a conflict of interest and caused a 'crisis in the leadership' of the Washington-based bank, the panel of seven directors found.

The panel expressed concern that the scandal had hurt the bank's reputation, hampered its mission of fighting poverty and disease and undermined a global anti-corruption drive that Wolfowitz has made the hallmark of his tenure.

'Mr Wolfowitz saw himself as the outsider to whom the established rules and standards did not apply,' it said. 'It evidences questionable judgement and a preoccupation with self interest over institutional best interest.'

European governments have led the public campaign to oust Wolfowitz, who has made widespread foes among bank staff and senior managers.

The US, which has chosen every World Bank president since the lender's founding in 1944, has stood by Bush's nominee.

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