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Screamer, schemer, seducer ... How Wolfensohn re-shaped the Bank.

The World's Banker

A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations

By Sebastian Mallaby

[pounds sterling]19.95 Yale University Press

ISBN 0-300-10801-X

Sebastian Mallaby's extraordinary biography of James Wolfensohn could not be more timely. After a decade serving as president of the Bank, Wolfensohn is to step down later this month. He leaves the Bank as an institution that is regarded by many as, in Wolfensohn's own words, "a service organisation that is in partnership with government and more broadly civil society".

This is in striking contrast to the Bank that was widely despised for the prescriptive economic structural adjustment policies imposed on many developing countries in the late 1980s and early 1990s.

These were the policies that led to riots in Africa--from Zambia in the south to Morocco in the north--and even precipitated the fall of the government in Sudan.

Moreover, the highly controversial appointment of Paul Wolfowitz to succeed Wolfensohn puts the role of the Bank's president under intense scrutiny. Those that suggest that Wolfowitz will not be able to get the Bank to learn towards his neo-conservative agenda would do well to learn from this book how his predecessor achieved fundamental change within the institution.

Mallaby leaves the reader in little doubt that it was primarily through the strength of Wolfensohn's character that he was able to rejuvenate the Bank--with a "force of nature" that blew through the corridors of the Bank's Washington headquarters with irresistible energy, clearing dust and cobwebs from every corner. "Jim Wolfensohn came to the Bank with his own kind of juice," Mallaby writes, "and the mix has been explosive."

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The 'strength of character' that Mallaby describes had unlikely origins. Wolfensohn was born and grew up in surburban Australia. Despite early scholastic promise, he only just scraped through high school to enter university. Mallaby describes Wolfensohn's first year at university as "isolated, unhappy and unsuccessful".

Then he found a mentor in a family friend and his studies flourished. He also joined the university's fencing team, five years later representing Australia in the sport at the Melbourne Olympics. After completing his university law course he applied to Harvard Business School, begging and bluffing his way to New York. "I was too stupid to know I was poor," Wolfensohn later recalled.

After Harvard Business School, Wolfensohn became a master deal-maker. But there was one incident that might have scuppered his career and landed him with a criminal record--for no less an offence than espionage!

The unsuspecting 'spy'

Shortly after Wolfensohn graduated from the Harvard Business School in 1961--coincidently the year the Bank set up an Africa department--he took a job selling air-conditioners which took him on a sales trip to newly independent Nigeria.

Wolfensohn found himself waiting for an appointment with a government minister at the new parliament building. To fill in the time he wandered into the building and to his astonishment saw the speaker of the Nigerian Parliament dressed in full-bottomed wig and gown copied straight from the British Parliament.

Believing that this sight really deserved a photograph he naively pulled a tiny Minox camera from his pocket and took a couple of pictures. A few minutes later the parliament's sergeant-at-arms appeared at Wolfensohn's elbow and led him away out of the building.

Still not sure what was going on, Wolfensohn was surprised to find a small crowd outside muttering something about a spy. Turning to his guide he asked who the spy was. "Sir, you are," was the reply. "You took pictures illegally and you have a spy camera!"

While eventually Wolfensohn was allowed his freedom in return for a letter of apology, the spy story made the front pages of the Nigerian press.

As Mallaby comments, this affair in Nigeria gave Wolfensohn some feel for the challenges that would confront the Bank in 'newly minted' African nations.

However, before Wolfensohn was required to address these challenges, there were to be near three decades of international financial wheeler-dealing. His most notable deal-making coup was to lead the rescue of the Chrysler Corporation in 1979, in the process amassing a multimillion dollar fortune.

This allowed him to set up his own highly successful financial consultancy firm and indulge his love of classical music.

By the time that Wolfensohn took over at the Bank he had fulfilled, many times over, the reasonable ambitions of an ordinary man. But Wolfensohn now set his sights on using his extraordinary energy to battle poverty.

As Mallaby elegantly describes it: "We live in an age when millions die because they are born in the wrong place. One section of humanity enjoys $2 lattes and disposable cameras, the other section lives on $2 a day and appears itself to be disposable."

"Poverty is all I think about" Wolfensohn said early in his Bank tenure. "I wake up in the morning thinking about it, and I go to bed thinking about it." And early in his tenure he insisted on a whirlwind African tour to see for himself, on the ground, the challenges the continent presented.

Living and breathing Africa

One of the first lessons was that Africa is not a homogenous entity. This was learnt on his visits to neighbouring Mali and Cote d'Ivoire--the former a triumph, the latter a disaster.

The morning after his arrival in Bamako, Mali's capital, his hosts assembled a group of praise singers to chant the visitor's praises outside his guesthouse. The resident Bank team, led by the redoubtable Linda McGinnis, thought this might be a bit much at 6.30am for the no doubt tired and jetlagged Wolfensohn. They need not have worried.

Out of the guesthouse he emerged, his eyes bleary but with a huge grin plastered over his face. He accepted a scarf from one of the singers, draped it around his shoulders and improvised a dance.

This breakfast time dance set a pattern for the Mali visit that took Wolfensohn and his wife on a tour of Bank-funded public-works projects within striking distance of the capital. Wolfensohn was bowled over. "Back in Washington," Mallaby writes, "he had confronted so many problems: the Bank was complicated, bureaucratic, controlled by arrogant barons. But here in Mali he had found the soul of the Bank he knew was there, hidden under the encrusted layers of head-office formality ... he was living and breathing Africa, showing the Bank did not need to be aloof and inaccessible."

But Cote d'Ivoire, the next stop on Wolfensohn's tour, could not have been more different. He had left the magic of the Sahel and entered ersatz Europe. His hosts were oppressively formal delivering long speeches with philosophical reflections on the nature of the Bank. Furthermore, Wolfensohn discovered, the Bank was propping up the country's budget with an 'education-adjustment' loan.

Wolfensohn concluded that the whole situation in Cote d'Ivoire was, in his own words, "ridiculous, preposterous, monstrous". He determined that the business of pouring out free 'adjustment' money could not continue, as the Bank should lend only to countries that could use its resources well and get out of the rest of them.

The Africa visit also persuaded Wolfensohn of an obvious priority for a continent burdened by some $235bn of debts. What he realised was that his institution had been making long-term loans that Africa was using to repay short-term IMF loans. Even though the Bank's loans carried low interest rates, they still accounted for around a sixth of sub-Saharan Africa's debt-service payments.

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The debt relief issue had previously been considered an anathema to the Bank--but Wolfensohn's approach must now rate as one of his enduring legacies--along with the way that he engaged in debate with NGOs. He has ensured the whole issue of debt relief is firmly on the Bank's agenda.

That goes some way to compensate for the most common criticism of Wolfensohn's two five-year terms as Bank president--that he did not focus on lending the $20bn at the Bank's disposal but preferred instead to finance various poverty reduction programmes--and that he delayed the Bank addressing the growing menace of HIV/Aids in the developing world.

Clearly, our author believes that his biography's subject, for all his faults, has left the Bank in much better shape than when he joined it. Mallaby's book was written too early to report what regrets Wolfensohn may have had in stepping down, but an interview in the Observer news-paper indicated his fears that with Wolfowitz at the helm, rich countries will continue to deny developing countries access to their markets.

One of the final acts of the Wolfensohn presidency was to approve funding for the Nam Theum dam in Laos. This has been heavily criticised by many development NGOs. However, as Mallaby illustrates, you cannot always take NGO criticism at face value.

He writes about the Bank-funded Bujagali dam in Uganda as an example. Activists had delayed the start of construction for several years, citing environmental and social concerns. As Mallaby points out, this had delayed the provision of electricity to homes, clinics and schools that lacked power--so he went to the area and check the claims.

What he discovered was that opposition was being led by a local group of 25 environmental activists--denying electricity for millions--and that the only opponents in the region were villagers living just outside the zone who would not be moved and receive the promised compensation packages!

No doubt his successor, Wolfowitz will be facing similar opposition to other mega-construction projects--the Grand Inga hydro project on the River Congo, for example, will undoubtedly require an element of Bank funding. It will be interesting to see how the new man handles such opposition. One thing is certain; he will be under the same intense scrutiny his predecessor endured.

Can he emerge with as much credibility?
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Title Annotation:The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations
Publication:African Business
Article Type:Book Review
Date:May 1, 2005
Words:1629
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