World Bank President James Wolfensohn was still a young man, the brash Australian obtained a law degree from
Sydney University, competed in the Olympics as a fencer and earned an MBA from Harvard before heading off to Europe,
he became one of the Continent's investment-banking standouts.
Along the way, the son of working-class parents developed
a fine eye for art and a sophisticated ear for music.
forceful opening movement, indeed, and the second was equally
impressive. Wolfensohn, an impeccably mannered man who
sounds more like Professor Henry Higgins than Crocodile Dundee,
wowed them on Wall Street as a member of the Salomon
Brothers team that helped extricate a financially distressed
Chrysler Corp. from the jaws of its creditors. He went
on to become a naturalized U.S. citizen, start his own investment
firm, amass a personal fortune exceeding $100 million
and, as a patron of the arts, straighten out the finances of
both Carnegie Hall in New York and the Kennedy Center in Washington.
His powerful friends and advisers include Washington
lawyer Vernon Jordan, former central banker Paul Volcker,
Federal Reserve Chairman Alan Greenspan, President Vartan
Gregorian of the Carnegie Corp., Chairman Juergen Shrempp
of Daimler-Benz and CEO Louis Gerstner of IBM.
Elizabeth II honored him with a knighthood in 1995. Wolfensohn,
65, is now composing the final movement of his professional
life's symphony. He's attempting to bring Wall Street
creativity to the World Bank, which boasts $162 billion in
total assets (versus $280.7 billion for Chase Manhattan, currently
the largest U.S. bank). It is also the planet's largest and
most august international development agency -- and perhaps
its most intractable bureaucracy. One of seven multilateral
banks of which the U.S. is a member, the World Bank
is charged with fighting poverty by helping to integrate developing
countries into the global economy. The aim of the avowed
liberal Wolfensohn is to transform what arguably is a largely
ineffectual operation, with a record of policy failures that
obscure its triumphs, into an effective organization that is at
once efficient, environmentally friendly and gender-sensitive --
while adjusting to a post-Cold War world of governments reluctant
to pour taxpayer funds into global backwaters. In contrast
to private-sector restructurings, Wolfensohn is constrained
by politics to execute the bank's radical transformation
with a minimum of bloodletting among its 10,000
employees (more than 5,000 of them at the bank's headquarters
in Washington). This is no mean feat and involves changing
a deeply ingrained culture dominated by desk-bound policy
the rumpled financier arrived at the World Bank in 1995, he
told one U.S. senator he believed he had about a 50-50 chance
of succeeding. But these days, despite surveys that peg employee
morale near rock bottom, he's considerably more optimistic.
"If you come back in 18 months, I believe you will find
the most exciting of the world's multinational institutions," he predicts. That target date roughly
coincides with the official end
of his first five-year term. Wolfensohn is willing to delay retirement
to his Wyoming log cabin (designed by Cesar Pelli) and
put in another five years to see that his reforms have an opportunity
to work "I'll have to see if they want to reappoint me
for another five years and I'll look at my health and see if I can
carry on. My predisposition is to carry on."
this point the affable Wolfensohn has no serious opposition. He's
been scoring points with the bank's most vociferous critics, like
environmentalists who had raged against its big dam and road projects;
scientists in Costa Rica recently named a species of beetle
after him, in honor of his efforts to preserve the country's biodiversity.
(Critics say Wolfensohn has bought the silence of environmental
groups with consulting contracts and projects like an $80-$150
million outlay in a partnership with the World Wildlife Fund
to protect 62 million acres of Amazon jungle in Brazil.)
of some poorer countries in Africa are thrilled that he is
forgiving their considerable debts -- $5.7 billion in seven countries
so far, in a program that eventually could include 80 nations
and as much as $125 billion in IOUs. Political conservatives
in the U.S., who believe the World Bank is irrelevant
at best and, at worst, shores up bad economic systems,
nonetheless have been leaving it largely alone, concentrating their fire instead
on the International Monetary Fund,
which is more heavily dependent on taxpayer dollars and plays a more visible
role in economic crises like those in Asia (the
IMF makes short-term loans to governments when they have
World Bank has flirted with political disaster. Some lower-level
managers recently approved a loan package to India for
a health system without advising Wolfensohn and top management
that some of the money would be used to fund abortions
in both the first and second trimesters. (Republicans in
Congress are stalling IMF funding until there are reassurances
that no U.S. tax dollars will pay for abortions; the World
Bank, which Wolfensohn says has a policy precluding abortion
funding, will approach Congress for funds next year.)
strategy calls for luring investor money to some of
the world's most backward countries by providing guarantees
against political risk, promoting joint ventures, and, most
important, by getting his bureaucrats to put down their pencils
once in a while and teach the locals how to build stable, sustainable
civil and financial systems. Instead of lending money
exclusively for big dams, superhighways and the other physical
trappings of industrialized nations, the World Bank will advise
governments on the drafting of strong commercial and environmental
laws, effective tax-collection systems, educational
institutions and financial regulation that demands the
kind of disclosure found in developed countries. A lot of the
governments already have gotten religion, Wolfensohn says. He currently sees
opportunity for private investors in both Asia
and Africa, despite the political and economic problems on both
write off Asia because of problems in Indonesia," Wolfensohn
advises. He's impressed at the speed at which other
troubled Asian economies are adopting market reforms -- notably
Korea and Thailand. "I think the Koreans and the Thais
understand that there is a need for fundamental change," he says.
Wolfensohn's urging, the World Bank became part of the bailout
of Korea when a credit crunch crippled its balance-of-payments
late last year. The bank provided long-term
loans to help stave off the country's private-sector creditors.
was apparently a one-shot deal. Though the U.S supported
the bank's role in that bailout, Treasury Secretary Robert
Rubin, who is briefed regularly by Wolfensohn, doubts the
bank will play a similar role in Indonesia. But he adds that the
final decision is up to Wolfensohn and his bank's directors.
is also "personally positive" on Africa, a region he frequently
visits. "I think there's a new leadership and a new spirit
in Africa," he declares. He notes that South Africa, the continent's
economic keystone, could undergo some transitional problems
when President Nelson Mandela steps down at the end
of 1999. But Wolfensohn deems Mandela's successor,
President Thabo Mbeki, an able executive. The
World Bank president is even upbeat -- for the record, at least
-- about prospects for economic and social progress in Russia.
In Moscow last week conferring with President Boris Yeltsin
and other leaders, Wolfensohn urged the Russians to address
social problems that contributed to recent battering of financial
markets. But, he told legislators, "you are not Indonesia,
with angry citizens looting and burning Indonesia (a client
whose economy Wolfensohn and the bank prematurely praised
less than a year ago), and with the new rulers of India, another
big borrower, frightening the rest of world with nuclear testing,
Wolfensohn might seem at best a cockeyed optimist.
he does harbor some concerns. One is that the Japanese, who
are doing some belt-tightening at home, might reduce or eliminate
their contributions to the World Bank, despite assurances
from Tokyo. When the U.S. Congress threatens to cancel
funding for the IMF, it makes it harder for Japanese politicians,
faced with budgetary constraints, to resist cutting funding
to multilateral institutions.
think the Congress is wrong on their positions about funding the IMF," Wolfensohn states. "But when it comes to social
which are the principal areas in which the bank is involved,
issues of health, education, fighting AIDS, infrastructure,
of putting projects together that can develop American
exports, there's a stronger, more visible case we can make."
sees U.S. corporations as big beneficiaries of World
Bank missionary efforts. But he seems genuinely passionate
about helping socio-economic underdogs. "Jim Wolfensohn
is generous by nature," says Washington lawyer and
Presidential pal Vernon Jordan.
note that Wolfensohn and his wife, Elaine, feel an obligation
to share their good fortune. Wolfensohn grew up under
the tutelage of parents who, although poor, were active in
helping Jewish refugees settle in Australia after World War II.
"Jim has his own little foundation that he doesn't much talk about,"
says Jordan. "He supports promising artists and musicians.
One year he brought three students over from Russia
to teach them investment banking." Wolfensohn has put 20%
of his salary (currently $224,650, after taxes -- he also nets
$111,410 in expenses) into the foundation for most of his working
World Bank's lending under James Wolfensohn
has been shifting from projects, like infrastructure
and energy, that promote industrial development,
to programs, like health and education,
that foster social advancement.
is highly competitive, says Jordan, who plays tennis
and golf against the banker. Adds Lloyd Cutler, former White
House counsel for President Clinton, "He doesn't suffer fools"
-- a useful trait for the leader of the World Bank at this juncture.
the past 10 years, private capital that has been pouringinto many developing
nations -- has dampened demand for credit from the World Bank. The share of
total lending by the bank
to its six most credit-worthy borrowers fell to 6% in the fiscal
years 1987-96 from 14% in fiscal '77-86. While the bank now
faces growing demand for its services in Europe and central
Asia (their share in total lending has grown to 11% in fiscal
'87-96 from 2% in fiscal '77-86), many of these countries have
the capacity to recover rapidly and may cease being eligible
for World Bank loans within the next few years. As a result,
strife-torn countries, and those where policy distortions are
proving difficult to rectify, might well account for most of the
bank's clientele in the next century.
is no news to Wolfensohn. "The environment in which we operate
has vastly changed in the last 10 years," he observes.
reason you have to focus people on change -- in the last 10
years, the role of the multilateral and overseas development assistance
has been reduced from $60 billion a year to roughly $40
billion a year. During that same period of time, private-sector
investing in the developing world has gone from $30
billion to $260 billion. What that says about this institution is
that we better work more closely with the private sector. The private
sector is now the financial, and in some sense is the technological,
engine of growth in many countries. And what you
need to do is tap into that entrepreneurial activity and reconceive
our own development plan within the context of what
we do in partnership with the private sector."
is the ninth bank president since the institution, along
with the International Monetary Fund, was established in July
1944 at the United Nations Monetary and Financial Conference
in Bretton Woods, New Hampshire. All the World Bank's
presidents, by tradition, have been Americans, named by
the bank's 24-member executive board of directors. The U.S.
government actually conducts the search for candidates -- Wolfensohn
was on the short list in 1979, even though he was an
Aussie citizen at the time. Each of the five largest shareholder
nations, including the U.S., appoints one executive director.
The other directors are appointed by groups of countries.
bank was established to make loans to countries rebuilding from
the devastation of World War II. When Robert S. McNamara
came on board as bank president in 1968, he felt the
time had come to expand the institution's mission.
considered the bank a development organization as opposed to
a commercial bank," says McNamara. "I focused on poverty reduction. It had been the belief
that a rising tide lifts all boats; that
if you raised a country's GDP, all levels of society would benefit.
A related theory was that if you diverted resources to the
poor, it would hurt the GDP. I didn't believe that. You could
not help the poor with redistribution of wealth per se.
poor are poor because their productivity is low. So if you raise
their productivity, you advance GDP growth of the rest of society.
We proved that empirically."
expanded the bank resources available to developing
countries. And he dramatically increased the bank's presence
in global capital markets, borrowing not only in dollars,
but in marks and yen, as well.
bank focused on funding big and complex projects, like huge
hydroelectric dams. The projects never seemed to help jump
start the local economies they were intended to help, largely
because the underlying financial and political systems were
organization became as big and complex as its projects. Currently
the World Bank Group -- the formal name of the organization
Wolfensohn heads -- comprises five organizations and
writes about $20 billion each year in new loans. The bank makes
most of its loans at market rates to middle-income countries
through its International Bank for Reconstruction and Development,
which has been self-funding since its founding and
has $107 billion in loans outstanding. Below-market loans to
poorer countries funnel through the International Development
Association, which alone among the five components
depends on taxpayer funds from 11 donors, including
the U.S., because its borrowers often are unable to repay.
It's been replenished 11 times, including last year, when it
received $800 million from the U.S. alone (IDA may be back for
more money next year). Financing for private firms comes from
the group's International Finance Corp., a key factor in the
World Bank's growing emphasis on private investment sources;
and guarantees to insure private investment in developing
countries are the purview of the Multilateral Investment
Guarantee Agency. A fifth agency, added in 1995, is
called the Consultative Group to Help the Poorest; it makes small
loans to Third World entrepreneurs.
Wolfensohn's arrival, the bank tended to view the world from
its comfortable headquarters in Washington. One former federal
official familiar with the institution says it had evolved into
a university faculty without any students. The work force was
overly concerned about position and tenure.
is exactly the kind of challenge that gets Wolfensohn excited.
Says John McArthur, a lifelong friend and onetime Harvard
Business School dean "He's gotten into things up to his
elbows throughout life. He's intellectually honest and courageous,
and when he sees something he thinks is wrong he weighs
in and tries to change it and, from his point of view, improve
it." McArthur is now at the World Bank helping Wolfensohn
with the reorganization.
guys always turn up and always tell me how to do the job
better," says Wolfensohn. "And the great thing is that I've known them long enough, so they don't
take any of my nonsense."
also picks the brains of some of the world's leading corporate executives
"They come here and I sit with them;
and I talk about the issues of change. And the issues of change
we face here are the same issues of change faced by big industrial
companies, but it's more complicated because we have
a board composed of representatives of 180 governments; so
it's not just a commercial board. Secondly, we have a development
function which is different from a profit function.
we have staff from 140 countries, and it's not easy to move
around that staff or just fire people onto the global market
because you have a responsibility to them. But what all these
chief executives tell me is that you need to establish your message;
and then you have to keep repeating it and repeating it
and repeating it for three or four years."
currently running about 400 World Bank executives through
a six-week management training course, including two weeks
at Harvard, designed specifically for the bank. Others are
being shipped from their offices in Washington to offices around
the world, where they can see first-hand how bank-financed
projects are faring. "I'm trying to encourage people
to think beyond their past experience," says Wolfensohn.
effect he is trying to turn members of his highly educated staff
into something more akin to Indiana Jones, the cinematic Ph.D.
who is a man of action, nimble of foot and mind. Wolfensohn
wants his experts to be as comfortable in the field helping
governments set up healthy financial systems as they are
behind a desk typing out project reports and memos. He also
wants them to develop the listening skills of crack Wall Street
salesmen and listen to what loan clients are telling them, rather
than ramming a program down their throats. Of course, all
10,000 can't don safari jackets and hit the jungle trail. So Wolfensohn
is constructing a global communications network at
the bank so that by the year 2000, politicians, businessmen and
farmers in client countries can communicate with World Bank
experts by Internet or interactive video. Wolfensohn says the
bank has the talent in house to become the world's premier expert
is by no means dismissive of his highly educated work
force. When we pointed out that employees were not yet bouncing
off the walls the way they do in the financial district, he
jumped to their defense. "Well, they are not bouncing off the
walls here but if you look at our computer access at midnight
and 1 in the morning, the thing is flying with people working
at home. The tradition of Wall Street, as you know, is that
you have to be there and be seen at 1, 2 or 3 o'clock in the morning
because of this crazy syndrome which occurred in my own
firm and at Salomon Brothers and other places. I don't think
that people here work any less hard. They work differently.
But the thing which I am trying to bring from Wall Street is to get the people
to feel a sense of accountability and a sense
of client orientation."
determines a country's eligibility for the World Bank's cut-rate
loans, though presumably it's per capita income, is largely
subject to the prevailing international politics of the day.
China, with the world's fastest-growing economy, is the
largest borrower, accounting for 12% of the bank's annual lending,
or $4.3 billion, according to the Congressional Research
every country is a member. The exceptions Cuba, North Korea,
Brunei, the Vatican, Taiwan and a few micro-states. So far
the bank's full-time board of directors, which meets as often
as twice a week, is standing four-square behind Wolfensohn.
ability to obtain the support of what in the past has been a fragmented
body is testament to his diplomatic skills. Juan
who represents Argentina, Bolivia, Chile, Paraguay, Peru and
Uruguay on the board, says the World Bank has become more efficient
at making loans since front-line services were decentralized,
resulting in more employees out in the field, visiting
with client countries. "It is a tremendous change -- a cultural
revolution," exclaims Cariag. "We're getting rid of the arrogant
culture that we had and replacing it with a more client- centered
also seems to have changed the image of the bank for
the better. "The old image was that the bank was unconcerned
with the environment and social issues," says Franco Passacantando, who represents Albania, Greece, Italy,
and Portugal. "It was accused of damaging developing countries,
assisting corrupt governments. No one knew if funds would
reach the intended beneficiaries or remain in the pocket of
some intermediary. The bank is now active in education and health
and assessing the social impact of development loans."
had a lot of problems," says Wolfensohn. "We've made a
lot of progress, I think we've got more to make." He started off
the interview in what a pop psychologist would interpret as a
defensive posture, arms and legs crossed tightly. Now he's loosening
up, showing us around his office. "I think everyone should
hope we make it. Because if we do, I think it will be the most
effective development instrument that the world has ever seen.
It will not be arrogant. It will not be haughty. It will not be
defensive. It will be open. It will be ready to learn. And it will
be at the disposal of clients."