ost in the brouhaha over Paul Wolfowitz’s tenure at the World Bank is what it means to Asia. The word “means” is used here since Wolfowitz hasn’t left yet amid a furore sparked by his involvement in a pay raise for his companion. His departure is effective 30 June. So, the multilateral institution is stuck with an infamously unilateralist leader for six more weeks.
There’s another reason to discuss Wolfowitz’s 23 months as World Bank president in the present tense: His legacy is a work in progress. It’s called the Asian Monetary Fund, and his peers at the International Monetary Fund may not be happy about it. An Asia bailout fund was considered during the 1997-98 crisis. It died a quick death amid strong US resistance to Asia creating a counterpoint to IMF, one over which the US Treasury Department would have zero influence.
IMF, of course, drew much ire during the crisis for demanding fiscal austerity and higher interest rates in return for bailouts. Since then, Asian governments have worked to wall off their economies from speculators and to stop outsiders dictating policies. Hence the unprecedented build-up of currency reserves. China alone has more than $1 trillion.
Earlier this month, finance ministers from 13 Asian nations agreed to pool part of their $2.7 trillion of foreign-exchange reserves to prevent a repeat of the crisis that depleted the region’s holdings 10 years ago.
“If there’s one lesson we learned from ’97, it’s that you better stand on your own two feet and you better be able to help yourself before others help you,” Asian Development Bank director general Rajat Nag said in Kyoto earlier this month. “There should be a mechanism by which countries of the region come to each other’s help.”
So do many Asian policymakers, and Wolfowitz’s tenure at one of the institutions involved in the Asian crisis is part of the sentiment driving the process. The real irony, many say, is that a man who has been given credit—too much, really—for combating corruption in developing nations got tripped up by it. Asians still bristle at talk of the region’s “crony capitalism” that emanated from Washington in the late 1990s.
That was especially true when celebrated US companies such as Enron Corp. and WorldCom Inc. turned out to be poster-children of bad corporate governance. And now, the Wolfowitz mess. Supporters argue Wolfowitz was the target of a Left-wing conspiracy, that his ouster was payback for being an architect of the war in Iraq while he worked at the US defense department and that he was sacrificed by bank staffers for tweaking the anti-corruption campaign begun by his predecessor, James Wolfensohn.
Yet Wolfowitz would have had zero credibility in the region preaching about corruption. It’s not just about demanding a huge raise for his girlfriend; it’s also about intellectual corruption.
Asian finance ministers watched with dismay as Wolfowitz shielded himself from the bank’s development experts with a tight band of Republican loyalists. He has been running a multination, multiphilosophy, multifaceted institution meant to understand the plight of the world’s poor and doing it like some corporate chieftain above accountability.
A quip one hears from Asian policymakers is how the “world” in World Bank hasn’t applied to Asia in recent years. Iraq and Afghanistan, certainly. Africa, too. And, of course, the US, whose bidding Wolfowitz often did. Yet, Asia has seemed like an afterthought.
That’s odd considering two-thirds of the world’s poor live in Asia. On the flip side, Asia is full of nascent powerhouses like China, India and Southeast Asia. Japan, too, is recovering. The region’s economies also are sitting on absolutely staggering amounts of currency reserves. Together, these economies could set up an Asian Monetary Fund to combat poverty that would dwarf the World Bank.
Wolfowitz’s departure comes as the bank gears up to raise $28 billion during the next three years to build schools, clinics and roads in the world’s poorest countries. The bank might consider turning to Asia for a loan. Governments here could say: “Do you want that $28 billion in cash or a cheque?”
The extent to which major economies are reliant on Asian savings to support their way of life was summed up in a 17 May report by Joseph Quinlan, New York-based chief market strategist at Bank of America Capital Management. Its title: “China’s Role as America’s Financial Sugar Daddy.”
In its dealings in Asia, IMF has, to its credit, taken on a less preachy air. There’s also less of a perception in markets that the US Treasury controls IMF’s puppet strings to the extent it did in the 1990s. Under Wolfowitz, the World Bank has often moved in the other direction. It’s probably no coincidence that since Wolfowitz took the top job, the idea of an Asian bailout fund got renewed traction. There’s also a growing urgency for reducing Asia’s reliance on the dollar. It means fears of Asia dumping US Treasuries to bring the money home may be getting a little more real.
It’s not a very distinguished legacy for a man many say did a great job at the World Bank. BLOOMBERG
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