When 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, where 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. 

A 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.

Queen 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 wonks.

When 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."

At 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.)

Governments 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 balance-of-payment difficulties).

The 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.)

Wolfensohn's 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 continents.

"Don't 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.

At 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.

That 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.

Wolfensohn 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,

Deputy 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, thank God."

Indeed, 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.

But 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.

"I think the Congress is wrong on their positions about funding the IMF," Wolfensohn states. "But when it comes to social issues, 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."

Wolfensohn 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.

Friends 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 life.

The 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.

Wolfensohn 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.

Over 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.

This is no news to Wolfensohn. "The environment in which we operate has vastly changed in the last 10 years," he observes.

"The 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."

Wolfensohn 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.

The 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.

"I 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.

The 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."

McNamara 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.

The 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 corrupt.

The 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.

Before 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.

This 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.

"These 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."

Wolfensohn 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.

Thirdly, 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."

He's 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.

In 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 on development.

Wolfensohn 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."

What 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.

Currently 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 Service.

Almost 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.

His ability to obtain the support of what in the past has been a fragmented body is testament to his diplomatic skills. Juan

Cariaga, 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 culture."

Wolfensohn 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, Malta 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."

"We've 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."