Wolfowitz resigns from World Bank

WASHINGTON -- Paul D. Wolfowitz yesterday resigned as president of the World Bank over his role in arranging generous pay raises for his girlfriend, ending a prolonged, extraordinarily charged battle that some officials say has badly damaged the poverty-fighting organization. He will step down June 30.

The departure of Wolfowitz, who insisted throughout a six-week battle that he had done nothing wrong, came after the Bush administration dropped its efforts to try to keep him in the job and began trying to negotiate a deal for his departure. Senior US officials said they worried that the drawn-out affair was beginning to raise questions about the bank's future effectiveness.

Wolfowitz will be able to collect a $400,000 performance bonus due him on June 1, according to two senior bank officials. US officials asked him to stay on as a caretaker until the end of June to allow time for the naming of a successor.

In the end, the 24-member bank board, in a statement that all but exonerated Wolfowitz, said, "He assured us that he acted ethically and in good faith in what he believed were the best interests of the institution, and we accept that. We also accept that others involved acted ethically and in good faith."

While finding no ethical lapses, the board did conclude that "a number of mistakes were made by a number of individuals."

The statement, the result of protracted negotiations among the board, Wolfowitz, and his lawyer, Robert Bennett, is at odds with a 52-page report made public this week by an internal committee of seven board members. It found that Wolfowitz broke the bank's code of conduct and criticized him for "questionable judgment and a preoccupation with self-interest over institutional best interest."

Wolfowitz, a onetime top assistant to former defense secretary Donald H. Rumsfeld and one of the Bush administration's main architects of the Iraq invasion, was widely unpopular among some European countries and many senior officials in the bank for his management style, as well as his role in planning the war. Two senior aides who accompanied him from the Pentagon often issued directives that ignored staff input, several bank officials said in interviews in recent months.

In a four-page statement, Wolfowitz focused mainly on his accomplishments during his two-year tenure. In addressing his departure, he said, "I am pleased that after reviewing all the evidence the Executive Directors of the World Bank Group have accepted my assurance that I acted ethically and in good faith in what I believed were the best interests of the institution, including protecting the rights of a valued staff member."

Wolfowitz's girlfriend, Shaha Ali Riza, was a senior communications officer for the Middle East and North Africa regional office of the bank. To avoid a conflict of interest, she left the bank and joined the State Department after Wolfowitz came to the bank in June 2005 . She remained on the World Bank payroll, however.

The crisis stemmed from Wolfowitz's handling of raises given to her.

An investigation by seven directors found that a bank ethics committee recommended a raise for Riza. While the bank's rules allowed for a maximum $20,146 raise, Wolfowitz approved a raise of $47,430, increasing her salary to $180,000. Since then, Riza has received raises that bring her pay to $193,590 -- well above that of Secretary of State Condoleezza Rice.

Wolfowitz acknowledged a month ago that he had made a mistake in the matter, while insisting that he had done nothing wrong ethically.

While at the bank, Wolfowitz had made his signature priorities to provide more aid to Africa and fight corruption in poor countries. The bank, which was formed in 1945 to help Europe rebuild after World War II, now provides more than $20 billion a year for development projects to poor and middle-income countries. The majority of the funding comes from the world's wealthiest countries.

In his statement yesterday, Wolfowitz said he hoped that work would continue. "The poorest people of the world, especially in sub-Saharan Africa, deserve the very best that we can deliver. Now it is necessary to find a way to move forward," he said.

But Wolfowitz's involvement in pay raises for his girlfriend sharply undercut his focus on corruption in bank projects, several critics said.

His departure "is going to be a good thing," said Kenneth Rogoff , a professor of economics at Harvard University who is now a visiting fellow at the Brookings Institute, a liberal Washington think tank. "I think the bank has worked through very difficult governance issues in this."

Inside the bank, which has more than 10,000 employees around the world, several said they were angry at Wolfowitz for dragging out the matter, but relieved the ordeal was over.

"It's long overdue, and it paves the way for a thorough cleaning of a very flawed leadership group," said one senior bank official, who requested anonymity for fear of retribution. "But there has been damage. There's a perception now of a huge gap between what the bank preaches and what it does."

Hours before the decision, President Bush seemed resigned to Wolfowitz's departure.

"I believe all parties in this matter have acted in good faith," Bush said. "I regret that it's come to this. I admire Paul Wolfowitz. I admire his heart, and I particularly admired his focus on helping the poor."

Until this week, Wolfowitz still retained support from Canada, Great Britain, Japan, and some African countries. But that backing evaporated after the investigation by seven bank directors questioned whether Wolfowitz still could lead the bank.

The anti-Wolfowitz sentiment had become so acute that Germany's development minister said earlier this week that Wolfowitz shouldn't come to a meeting next week in Berlin to discuss aid to Africa.

Some analysts said the strong opposition to Wolfowitz was at least partially tied to his role in the Iraq war, undercutting his position at the bank. "Were someone else to have done this, it would have been a non issue," said Roger Bate , a resident fellow at American Enterprise Institute, a conservative Washington think tank. "He's being pushed [out] for his history in the Iraq war. In any other situation, this would not have been a resigning matter."

Scott Barrett, a professor of international relations at Johns Hopkins School of Advanced International Studies, said the choice of the next president will be critically important. The United States has traditionally held the power of choosing the bank president, and Treasury Secretary Henry Paulson Jr. said yesterday that he expected that wouldn't change.

"It's important they pick someone whom everyone will agree right away is a good choice," Barrett said. "It could be a surprising appointment, and it may not be an American."

Material from wire services was used in this report. John Donnelly can be reached at donnelly@globe.com