Allan Meltzer, professor of political economy at Carnegie Mellon University and a visiting scholar at the American Enterprise Institute, doesn't think the problem of corruption is the fault of the oil industry per se but the result of years' worth of financial support provided to corrupt governments. "The obvious thing is to say we're not going to give money to countries that are corrupt," he says. And he predicts that Wolfowitz -- coming from the same administration that created the Millennium Challenge Account, a foreign-aid program designed to target aid toward well-functioning governments -- may well try to institute such a reform.

Wolfowitz has certainly promised to crack down on corruption at the World Bank. And he touts his experience in Indonesia as an example of his interest in third-world development. But to many, his past actions don't inspire confidence. After leaving his ambassador's post, Wolfowitz used his Indonesian contacts to help found the U.S.-Indonesia Society, a private organization funded by oil and mining companies to press U.S. business interests in Indonesia, even though those companies knowingly financed the notoriously corrupt and abusive military-backed regime of President Suharto. The society's most active members included New Orleans-based mining giant Freeport-McMoRan, one of the largest American investors in Indonesia, which generated billions of dollars for the Suharto government while so brutalizing the environment and endangering local residents that it lost its U.S.-backed political risk insurance in 1995.

And Wolfowitz was strangely silent on the Suharto government's cronyism, even reporting to Congress in 1997 that Suharto provided "strong and remarkable leadership," notwithstanding vast human rights abuses in East Timor. "He didn't seem to look at who was really benefiting most from gross corruption in Indonesia," says Ian Gary, an advisor on extractive industries for Catholic Relief Services. "For me, the question is whether Wolfowitz will make the intellectual connection between the role that natural resources and particularly oil have played in fueling corruption -- by concentrating power in the hands of the elite few -- and what he says is his interest in good government."

Until now, Wolfowitz has expressed great faith in the capacity of oil to bail out developing nations. In fact, he said it would be the key to postwar development in Iraq. Iraq's oil revenues "could bring between $50 [billion] and $100 billion over the course of the next two or three years," Wolfowitz told the House Budget Committee in February 2003. "We are dealing with a country that can really finance its own reconstruction and relatively soon."

But experts were already warning that the Pentagon's faith in oil was folly. "His miscalculation on Iraq was appalling," says Youssef Ibrahim, managing director of the Dubai-based Strategic Energy Investment Group and former energy editor for the Wall Street Journal. "Before the invasion, Iraq exported to the outside world 3.5 million barrels of oil a day. Today, on a lucky day, Iraq exports maybe 1.4 million barrels. Not only did he completely miscalculate what Iraqi production would be after the war, but in fact the world has lost nearly 2 million barrels a day of Iraqi oil."

What's more, even if oil does provide vast revenues to a government, many believe a public multilateral institution dedicated to fighting poverty ought not be financing the projects of private oil companies, which would be likely to invest in oil-rich developing countries anyway. "Oil is not an industry that is in need of any capital," says Ibrahim, a consultant to major oil companies. "I'm concerned that he would divert funds from worthwhile projects to things like looking for oil, which are pretty much within the hands of major multinational oil companies (which have very deep pockets). This would be squandering the World Bank's funds, and a misallocation of public resources."

Wolfowitz's long-standing support for privatization raises more concerns. He was one of the leading proponents of early privatization of state-owned enterprises in Iraq, including the oil industry, which likely would have been a violation of international law. Some watching the World Bank worry that as head of the world's largest public lending institution, he'll press governments to privatize their industries to make them available for U.S. investment, regardless of whether that's in their best interests. They also worry that he'll emphasize foreign corporate investment over government-run antipoverty programs, channeling more money toward the arm of the bank that lends to corporations and less toward poor countries' governments. "Many of us fear that Wolfowitz will yank the World Bank away from a growing emphasis on programs that reach the poor and cast it back onto these giant infrastructure projects which primarily help big companies," says John Cavanagh, president of the Institute for Policy Studies in Washington, which has tracked a recent significant shift by the bank away from financing governments and toward financing corporations in the oil and gas sector. (Altogether, the World Bank has put up more than $11 billion for oil, gas and coal projects since 1992.)

It was the last World Bank president to come from the Pentagon -- Robert McNamara -- who originally concentrated bank lending on huge infrastructure projects such as highways, ports and dams. Many of these projects, which some critics believe were chosen for supporting U.S. foreign policy interests rather than because of their suitability as development projects, in retrospect are viewed as environmental, social and economic disasters.

Wolfowitz will face another controversial policy debate at the bank -- whether it should provide grants rather than loans to the poorest countries, a reform the Bush administration has pushed. While grants have the virtue of not encumbering poor governments with more debt, they make the bank more dependent on its member countries for replenishment of the unpaid money, and some of those countries face serious political obstacles to providing additional funds. The result, some fear, could be an overall shrinking of the bank's investments in poor governments and an increasing dependence on multinational corporations, rather than democratic governments, to drive third-world development.

Now, some of the standards those companies must follow are at risk of being jettisoned. The International Finance Corporation, part of the World Bank, is currently reevaluating the environmental and social safeguards it requires of all World Bank-sponsored projects. These minimum standards ensure that companies borrowing from the bank employ modern environmental protections and consult with communities adversely affected -- forced to move, for example -- by bank projects. The bank's requirements have been adopted by many major commercial banks and now set the standard for about 80 percent of the major infrastructure projects financed worldwide. Early drafts of the IFC's proposed changes suggest the bank may water down those standards significantly.

"I worry that Wolfowitz will take advantage of lax safeguards at the IFC being created to promote a business agenda, as he did in Indonesia and has been done in Iraq, in a way that someone less oriented toward big business might not," says Steve Kretzmann, founder of Oil Change, a new nonprofit focusing on petro-politics. As oil prices rise, shortages loom and the United States faces growing competition for oil supplies from emerging superpowers like China, the pressure to put American business interests first will only grow.

In the end, how Wolfowitz conducts his World Bank presidency will come down to whether he carries the resource curse into his new job. Can he shift his focus from the United States' unilateral foreign policy objectives to the very different antipoverty mission of the most economically powerful multilateral institution in the world?

"Wolfowitz has instincts that are a sort of coercive utopian idealism, where American power, and now maybe World Bank financial muscle, are used to force the American version of utopian ideals like democracy and free-market opportunity on the rest of the world," says Easterly, the former World Bank economist. "I actually believe in those ideals myself, but I don't think they can be forced on anybody from the outside, and I don't think that their current American incarnation represents some perfect model that everybody else should follow."

Since all indications are that Wolfowitz wants the rest of the world to follow where America leads, his biggest challenge may be adapting his unqualified American utopianism to the murky realities of the developing world.

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