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Wolfowitz's exit from World Bank imminent

World Bank directors and the US are working on a deal that could lead to scandal-hit bank President Paul Wolfowitz's departure as early as Thursday.

business Updated: May 17, 2007 10:35 IST

World Bank directors and the US are working on a deal that could lead to scandal-hit bank President Paul Wolfowitz's departure as early as Thursday, a bank official said.

A proposed deal would include an admission by the World Bank that its bureaucracy shares blame for the ethics scandal that engulfed Wolfowitz, said the official, who spoke on condition of anonymity. In return, the former US deputy defence secretary would leave the aid agency.

"We're looking at reaching an agreement that avoids a vote (on the 24-member World Bank board) and that offers him wording he can accept so he resigns," the official said.

The US board representative pledged to offer a "practical solution," but asked for more time on Wednesday, the bank official said. The US proposal could come when the board resumes deliberations on Thursday, the official said.

The delay suggests that US President George W Bush's administration is negotiating with Wolfowitz to prod him toward departure, after the White House this week appeared to soften its support for him.

World Bank board members met inconclusively for a second day on Wednesday to act on a scathing internal report that found Wolfowitz broke ethics rules when he promoted his girlfriend to a higher salary after becoming bank president in June 2005.

The White House admitted on Wednesday that the tug-of-war buffeting the World Bank for nearly two months is a "bruising episode" that requires "a way forward to maintain the integrity of the institution."

The US administration shifted ground this week by opening the way to Wolfowitz's possible departure, suggesting it would accept a review of his leadership in which "all options" are open - if the World Bank agrees that his management "mistakes" were not "a firing offence."

But with leading European governments highly critical of Wolfowitz and apparently intent on a quick end to the crisis, any plan that would let him stay on for an undetermined period looked to be a tough sell to the World Bank's board.

A key planner of the US-led Iraq war, Wolfowitz has been a polarizing figure at the bank since Bush nominated him in 2005. A quick resignation might make it easier for the US to lay continued claim to the World Bank's top job.

The US is the bank's largest shareholder. Still, it holds only 16.4 per cent, leaving it increasingly isolated as support for Wolfowitz has ebbed among the bank's managers, staff and the 185 member governments.

Wolfowitz made an emotional plea to the board on Tuesday, saying he and girlfriend Shaha Riza "have been held up to ridicule" and rejecting the investigative report's finding that he put his personal interest ahead of the bank.

At issue is a hefty pay raise for Riza that Wolfowitz, 63, directed three months after becoming bank president in June 2005.

Riza, a World Bank communications adviser, was loaned out to the US State Department to avoid a potential conflict of interest but was kept on the bank payroll.

An investigating panel of seven World Bank directors found on Monday that Wolfowitz broke ethics and staff rules, was guilty of a conflict of interest and had hurt the bank's reputation. It also acknowledged that bank officials gave Wolfowitz unclear advice on the matter.

The bank's staff association says the raise was nearly twice as high as allowed under bank rules and weeks ago call for Wolfowitz to resign.

Wolfowitz says he was following suggestions by the bank's ethics committee and has accused foes of mounting a smear campaign to force him out.