World Bank 'in Crisis' Over Wolfowitz

The World Bank's future is in "crisis" over the pay scandal involving Paul Wolfowitz and his girlfriend, according to an influential European minister, as the embattled bank president accused critics of spreading "misleading information".

The Dutch development minister, Bert Koenders, told Reuters last night that he had "grave concern" over the controversy, which revolves around a promotion and pay rise awarded to Mr Wolfowitz's girlfriend, saying: "I see this as a substantial crisis for the institution."

"This has nothing to do with anything even related to the United States," Mr Koenders said, referring to Mr Wolfowitz's former role as a key advocate of the US invasion of Iraq. "It has to do with standards at the bank, it has to do with credibility and reputation ... It's a concern we have about the future of the institution."

The comments, from a country with a prominent role in international development, highlighted the divide between those - including the UK, Brazil and Germany - who want Mr Wolfowitz to go, and others, such as the US, Canada and several African countries, who are happy for him to remain in his post.

Mr Wolfowitz vowed yesterday he would continue as president. "The bank has important work to do and I will continue to do it," he told a press conference in Washington, after widespread speculation that he might resign.

Asked if he had considered stepping down, he replied: "I believe in the mission of this organisation, I intend to carry it out. I have had many expressions of support."

Mr Wolfowitz's position remains uncertain, and is in the hands of the bank's governing board. Stopping short of calling for his resignation, Mr Koenders said: "I don't want to hide the fact that I have doubts about his functioning."

His comments followed highly critical statements by the powerful steering committee of the bank and the International Monetary Fund, which described the controversy as "of great concern".

"We have to ensure that the bank can effectively carry out its mandate and maintain its credibility and reputation as well as the motivation of its staff. The current situation is of great concern to all of us," the committee said.

"We expect the bank to adhere to a high standard of internal governance."

Alison Cave, the head of the World Bank staff association, which represents 7,000 employees, repeated calls for his resignation. "We do not see how he can possibly regain the trust of the staff," she said. "I don't think he fully understands how much this has damaged the organisation."

Under siege for awarding promotions and pay increases to his girlfriend Shaha Riza, Mr Wolfowitz - a Bush administration appointee - sent emails to bank staff over the weekend to explain his position.

"Out of respect for the board review process that has been underway, I have said little. I feel, however, that this has left a vacuum which has been largely filled by misleading information," he wrote.

The email included a selection of documents from a bundle of papers relating to the affair that had earlier been released by the World Bank's governing board.

Critics insist that he cannot continue to lead the World Bank's fight against corruption, after it emerged he had personally intervened to secure a 46% pay rise for Ms Riza when she was seconded to the US state department after his appointment to the bank in 2005.

Bank rules forbid partners or spouses from working together. In previous cases, one party of a relationship accepted a pay-off and resigned from the bank or was moved to another arm of the organisation. Ms Riza salary's at the state department was set at $193,590 (£97,400) before tax, higher than that the US the secretary of state, Condoleezza Rice.

Further details have emerged of two other highly-paid appointments made by Mr Wolfowitz that may also have bypassed the bank's appointment procedures.

The Financial Times reported that the bank's senior human resources officer was not consulted over terms and conditions awarded to Robin Cleveland and Kevin Kellems, two former Bush administration officials who Mr Wolfowitz brought with him as special advisers.

Ms Cleveland and Mr Kellems were given salaries of around $250,000 before tax - the same amount paid to more senior and highly qualified bank officials.