'The World Bank will be hated once again'

Joseph Stiglitz holds a Nobel Prize in economics. He is a professor at New York's Columbia University and a former chairman of the American Government's Council of Economic Advisors.

Now 62, he remains one of the very best and most widely-respected economists in the world.

But ask him about United States President George W. Bush's nomination of Paul Wolfowitz, a Pentagon hardliner, as next World Bank President, and Stiglitz's language is harsh.

"This is either an act of provocation by America, or an act so insensitive as to look like provocation," he says. "The World Bank will once again become a hate figure. This could bring street protests and violence across the developing world."

The World Bank is the world's most important development institution. It is the main lender to poorer countries for a whole range of projects, including the fight against poverty and HIV/Aids.

Wolfowitz is US deputy defence secretary and widely regarded as the chief intellectual architect of the Iraq war. An arch "neoconservative", he is probably Bush's most hawkish advisor and, in some diplomatic circles, an incendiary figure.

The US choice for World Bank president generally gets the job.

"My worry," says Stiglitz, "is the World Bank will now become an explicit instrument of US foreign policy. It will presumably take a lead role in Iraqi reconstruction, for instance. That would seriously jeopardise its role as a multi-lateral development body."

This is Stiglitz's first public utterance since last week's nomination. His views matter. When he was the World Bank's chief economist under the current president, James Wolfensohn, whose decade-long tenure ends in June he rebuilt its reputation.

Stiglitz steered the organisation away from the discredited diet of fiscal austerity and rapid market liberalisation it had force-fed developing countries for years. He fears a reversal if Wolfowitz takes the helm, and imports his tough-minded Pentagon instincts.

More respect

"In recent years, more moderate policies and an anti-poverty focus have won the bank much more respect across the developing world," he says. "That progress would be badly undermined by an extreme turn to the right."

Wolfowitz's views on development remain vague. But his mere appointment, says Stiglitz, would destroy the World Bank's credibility among poorer nations, preventing it from promoting even sensible policies.

"Good reforms, including efforts to tackle poverty and disease, will be tainted," he says. "Governments in developing countries will come under enormous pressure, with elections being fought on whether or not they will kick out the World Bank."

Stiglitz says that, in the wake of the Iraq invasion and the torture of prisoners at Abu Ghraib, Wolfowitz will never be accepted by many countries the World Bank is supposed to assist.

"The arguments for war were lies. Human rights abuses have been exposed. That's why objections to this nomination are felt very deeply in many parts of the world."

Bush promised a more conciliatory diplomatic touch during his second term. Yet barely a week before nominating Wolfowitz, he named John Bolton as US ambassador to the United Nations.

Bolton is another hardliner and an outspoken UN critic. All this, says Stiglitz, is a deliberate display of raw American power.

"So what if the rest of the Western world is talking about global poverty? The US wants to demonstrate it can do whatever it wants. The only way to hold power, after all, is to exercise power. This nomination is the exercise of power."

I put it to Stigliz that Wolfowitz is an intelligent and capable man with wide experience in US public service.

He knows how to run sprawling bureaucracies and has served, too, as ambassador to Indonesia, a large and populous developing country.

"But he has no training or experience in economic development or financial markets," Stiglitz says.

"Poverty is a major global concern and the Bank is the most important institution addressing that. So we need someone in charge who knows developing countries and who knows development."

Stiglitz suggests Arminio Fraga, Brazil's former central banker, Ernesto Zedillo, the former Mexican President, and Kemal Dervis, who as finance minister steered Turkey through financial crisis.

"All three are first-rate economists who command global respect. Why should the president always be an American?"

Mockery of democracy

Stiglitz is difficult to dismiss. He has sat at the very highest US policy-making tables. But he bemoans the "carve-up" which allows Europe to pick who runs the International Monetary Fund, while America gets the World Bank.

"This makes a mockery of the G7's so-called commitment to democracy and transparency."

And as our conversation ends, Stiglitz paints a picture of how he sees the broader impact of Wolfowitz running the World Bank.

"This nomination has sparked feelings of despair across the world that voices aren't being heard," he says.

"A set of hard-line policies imposed by the US through the World Bank would lead to a strong sense of alienation. Europe must now stand up and veto this nomination.

"If it fails to do so, I worry the US will try to push through almost anything it wants.''

Liam Halligan is Economics correspondent at Channel 4 News