Monday, March 21

Paul Wolfowitz and the Arab Problem

“Pundita, dear, the Japanese had signed off on Wolfy even before Bush formally nominated him [for World Bank president]. So what kind of president do you think he’ll make? [Signed] Boris in Jackson Heights”

Dear Boris:

At the moment of this writing it seems likely that Wolfowitz has the job but the Bank vote has not yet been cast. Unwise to underestimate Brussels in this matter because so much is at stake for them. Behind the polite response from Brussels to the Wolfowitz nomination is a battle to determine how to use the World Bank to work on the Arab Problem. The Arab Problem is not part of the US war on terror, although it intersects with it. The Arab Problem is the result of Arab migration patterns, demographics, widescale poverty, and a host of grave social problems connected with Arab culture.

Discussion of the problem has been muted in the Western press and officialdom even though it was Arabs who formally identified the problem with the publication of the first Arab survey for the United Nations. The survey was launched several months prior to 9/11 but by the time it was published, in July 2002, government leaders were loath to publicly discuss the topic because Arabs are of course Muslims.

However, President Bush did try to propose a solution to the Arab Problem, which he dubbed The Middle East Initiative. This was met with howls of “Helsinki Initiative!” from Brussels, Arab leaders egged on by Brussels, and the Cold War Warrior crowd in Washington, which wanted to keep US resources focused on making Russia into a corn patch on the map.

Amending the name to “Greater” Middle East Initiative didn’t mollify the critics. The Arab Street picked up the howls, charging that America was trying to pave over the Middle East with American culture. Thus, the Bush stab at working on the Arab Problem would have to proceed in piecemeal, tiptoe fashion instead of as a comprehensive, explicitly stated plan. That’s a shame because the Arab Problem went untended for so long and has so many facets that it’s best dealt with in coordinated fashion.

Wolfowitz understands at a deep level the Arab Problem and the Middle East. Thus, his name surfaced in Washington even before Bush’s reelection during discussion of possible candidates for next World Bank president. The question at that time was whether Bush would want to reshuffle leadership at the Department of Defense if he won reelection. And I think a lot rode on the Iraqi election. If the election process went reasonably well, then Bush could really push for Paul Wolfowitz as next World Bank president.

Official EU response to the Wolfowitz nomination has been muted, but Brussels is not happy with the nomination. As soon as the nomination was announced, a well organized ‘grassroots movement’ sprang into action in Europe to ‘pressure’ Brussels into making a strong protest to Washington about the nomination. Clearly the movement was ready to spring into action well in advance of the nomination but probably would have sprung no matter which candidate Bush announced.

The question is whether the movement, or elements of it, is concerned with promoting the Brussels view on how best to address the Arab Problem. The answer would be sheer guesswork because again Brussels has (to my knowledge) continued to avoid public discussion of the problem. But taking a shot in the dark, it might be that the plan for ending world poverty that Jeffrey Sachs outlined in his latest book indicates how Germany and France want the US to deal with the Arab Problem.

In any case, the Arab Problem is certainly worse in Arab regions that don’t have much or any petroleum resources. But it would be confusing distinct issues to apply that point to how the Bank can be used to work on the Arab Problem.

Contrary to popular perception, the Bank is not an aid organization. It’s a financial institution and a sound one. It has to remain sound if it wants Bank bonds to have a high rating because the Bank does not only finance projects through grants from member countries. To keep their credit rating high, the Bank has to get returns on their investments—in other words, they have to collect on loans they make to governments.

The worst-case countries really can’t afford to qualify for Bank loans—even with the softest repayment terms and zero interest. Those countries are best helped by outright aid. Yet it seems Brussels wants to remake the Bank into more of an aid organization. That trend got seriously underway during Wolfensohn’s tenure; the Bank has made outright grants. That’s like trying to make your electric blender into a bread toaster. The World Bank can raise big loan amounts just because it’s a financial institution with a good credit rating. If you mess with the formula, you undercut or even destroy the Bank’s capacity to make big-ticket loans.

Post-Ba’athist Iraq, which of course is situated in the Middle East proper, is a perfect candidate for the classic big-ticket IBRD model of development and reconstruction, which does best at helping countries that have fallen backward. Years of Ba’athist rule, which included a long war with Iran, left the country’s infrastructure in ruins even before the US bombing campaign. Yet because Iraq has large oil reserves, they can be expected to make timely repayments on big Bank loans. And because Iraq manifests all the problems that have been noted with other Arab countries, the World Bank could, in theory, make fast inroads on the Arab Problem by lavishing loans of all kinds on Iraq.

If you take the darkest view of Brussels, which is that they are bent on destroying US power in the world, it’s easy to read dark motives into what is surely their lukewarm support for rebuilding Iraq with Bank loans. However, the bottom line is that Brussels is trying to find money to build up the EU military and tend to the many administrative expenses of running the European Union. There might be no immediate payoff for Germany and France in supporting big loans to Iraq because the two Euro nations stood on the wrong side of history on the matter of Bush’ plan to deal with the Iraqi Ba’athist regime. The Iraqi government will remember that when it comes time to okay contractors for big Bank projects--unless Germany and France greatly extend themselves to be helpful to Iraq, which to my knowledge they haven’t yet done.

Does all this mean that Wolfy at the helm of the Bank would result chiefly in a flurry of loans to Iraq? His diplomatic stint in Indonesia, core beliefs, and understanding of the Arab Problem suggest otherwise. But let’s not jump ahead of ourselves. Because America is at war Brussels has cards to play. Washington’s priorities do not place the World Bank or the Arab Problem at the top of their To-do list. So now, we wait.


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