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Experts say the war hawk's fealty to the oil industry could derail the World Bank's mission to reduce poverty.
Apr 26, 2005 | On the same day that Goldman Sachs predicted world oil shortages could spike the price of oil to $105 a barrel, Paul Wolfowitz was confirmed as the World Bank's next president. The confirmation of Wolfowitz on March 31 turned around what might otherwise have been a bad-news day for the White House. Now, a leading architect of U.S. foreign policy would be in a position to pressure the world's largest public financial institution to help pay for the exploration, drilling and transport of America's most coveted natural resource.
Of course, it's too early to know for sure what Wolfowitz will do. But experts who've followed the bank's troubled history in financing the oil, gas and mining industries around the world have real concerns about how the soon to be ex-deputy secretary of defense will balance his long-touted commitments to a "new American century" with the very different ones he'll assume on June 1 at the World Bank. Although Wolfowitz has assured his critics that he believes deeply in the bank's aim of reducing poverty, calling it "a noble mission and a matter of enlightened self-interest," U.S. foreign policy, forged under Wolfowitz's strong hand, has been dedicated to American hegemony, energy security and the opening of foreign markets to U.S. business -- goals that are often in conflict with the bank's mission.
Whether the bank's next leader can reconcile his old beliefs with his new position is a burning question among longtime critics of the World Bank's financial support for companies like Halliburton, ChevronTexaco and ExxonMobil (among the bank's biggest private beneficiaries), supposedly in the interest of alleviating poverty. Decades' worth of studies, often performed by the bank's own experts, have shown that oil, gas and other so-called extractive-industry projects have done little to promote growth in poor countries. On the contrary, countries that depend economically on oil exports tend to have slow growth, deep-seated corruption, repressive governments and frequent conflict. The phenomenon is so widely known it has a name -- the resource curse. And it has led experts across the political spectrum to claim that the bank has been derelict in its duty to the world's poor, employing policies that make poor countries even more dependent on selling their finite natural resources to the highest foreign bidder.
In response to mounting pressure, the bank commissioned an independent study in July 2001, which after two years of exhaustive research worldwide concluded that the bank should impose stringent standards and stronger safeguards on oil and gas projects and, by 2008, stop supporting oil production altogether. Ultimately, the bank's top brass would not agree to stop financing oil industry projects, but they did promise future reforms aimed at curbing corruption and ensuring that oil profits reach countries' poor.
It will now be up to Wolfowitz to carry out those reforms. But some are skeptical that he'll be able to shed his Pentagon perspective enough to genuinely pursue the bank's antipoverty mission. Indeed, some believe he was placed in his new post precisely to pursue U.S. policy objectives. Wolfowitz's appointment "strongly suggests that President Bush has something specific in mind for the bank -- to be an instrument of U.S. power," says William Easterly, a former World Bank economist who now teaches at New York University.
Easterly is not alone in that view, and over the years, Wolfowitz himself has made it clear how he believes U.S. power should be exercised. "In the Middle East and Southwest Asia," Wolfowitz wrote in a draft Defense Planning Guidance document in February 1992, leaked to the New York Times, "our overall objective is to remain the predominant outside power in the region and preserve U.S. and Western access to the region's oil."
Those sorts of statements are now causing serious concern. "I worry that Wolfowitz will be more concerned about increasing global fuel production, and less concerned about whether or not such projects actually contribute to economic development and poverty alleviation in oil-producing countries," says Michael Ross, a UCLA politics professor who advised the World Bank's extractive-industries review chairman.
Manish Bapna, director of the Bank Information Center, a watchdog group, warns that Wolfowitz's past concern with U.S. oil security is in direct conflict with his more recent statements about promoting democracy. "The focus on strengthening democracy would seem to support requiring strong governance standards before providing financial support to countries to develop their oil resources. But much of the oil development in the world today is in countries which are not democratic and whose governments are not accountable to international norms. How will those objectives be reconciled?"
Not everybody lacks faith in Wolfowitz's ability to shift focus. David Victor, a senior fellow at the Council on Foreign Relations and director of the Program on Energy and Sustainable Development at Stanford University, a project funded substantially by BP and the Electric Power Research Institute (created and supported by the major utility companies), says the appointment of Wolfowitz "offers the opportunity for the administration to extend to the bank a philosophy of development that focuses on underlying fundamentals -- good fiscal management, rule of law, openness to trade -- that have been shown to drive whether countries actually make good use of development dollars. I would be pretty confident this will be a big part of the philosophy at the bank: setting the conditions for sustainable development rather than just putting money into projects."
Perhaps, but many industry experts note that supporting large oil and gas projects almost always comes into conflict with fighting corruption and promoting sustainable development. As UCLA's Ross and others have shown, oil production often distorts the economy, exacerbates corruption and inhibits the development of true democracy. And the bank can easily become part of the problem, because large multinational corporations that borrow from the bank to invest in developing countries usually contract with national governments, which are typically in charge of the countries' oil and gas industries. As a result, huge amounts of money often are funneled to corrupt, antidemocratic or repressive governments. With little incentive to insist on transparency or democratic reform, a corporation financed by the bank essentially ends up propping up a corrupt government and becoming a critical part of the corruption.
