White House Stands By Wolfowitz Despite His 'mistakes'

The Bush administration circled its wagons around Paul Wolfowitz yesterday, saying the World Bank president did not deserve to be sacked for the improper pay rise to his partner, though officials did raise the possibility of a compromise.

"All options are on the table," the White House spokesman, Tony Snow, told reporters. "Members of the board, Mr Wolfowitz, need to sit down and figure out what is in fact going to be best for this bank."

There was no sign of a compromise from Mr Wolfowitz who appeared before the bank board last night, a day after an official investigation found that he broke bank ethics rules by engineering a $60,000 (£30,000) pay rise and a promotion for his partner, Shaha Riza.

"I acted in what I believed were the best interests of the institution," Mr Wolfowitz told the bank board, according to a copy of his remarks obtained by the Washington Post. "I implore each of you to be fair in making your decision, because your decision will not only affect my life, it will affect how this institution is viewed in the United States and the world."

For much of the day yesterday, administration officials insisted that, although Mr Wolfowitz had been wrong to secure the outsize pay rise for Ms Riza, he did not deserve to be sacked.

"What we've said is, yeah, he made mistakes," Mr Snow said. "That pretty much is obvious. On the other hand, it's not a firing offense."

The secretary of state, Condoleezza Rice, took a similar approach, admitting Mr Wolfowitz's error, but saying it was not serious enough to cost him his job.

"It doesn't seem to be the kind of thing that you would want to see the dismissal of the World Bank president over," she said. "I hope it will be resolved in a way that is true to what really happened there but also strengthens the bank, which is a really important institution."

However, doubts about Mr Wolfowitz's ability to lead the bank solidified following a series of telephone calls between the treasury secretary, Hank Paulson, and finance ministers of industrial countries.

Mr Wolfowitz's tenure at the bank has exposed deep divisions between Washington and the Bank's European members, who remember him as the deputy defence secretary at the Pentagon and a prime architect of the war on Iraq.

Until yesterday's round of phone calls, the administration appeared prepared to accept those divisions.

President George Bush is well known for his personal loyalty to administration officials under fire. However, the administration's readiness to back Mr Wolfowitz against his critics goes further, said Sebastien Mallaby, a fellow at the Council on Foreign Relations and an author of a book about the World Bank.

The administration is acutely conscious that resentment towards Mr Wolfowitz within the bank is bound up in European opposition to the war on Iraq. It also wants to head off any move to change the system under which it remains a US perogative to choose the president of the bank.

"Wolfowitz is still the guy that the president appointed and he is not going to cave in especially if he believes that the anti-Wolfowitz side is motivated by opposition to the war on Iraq," Mr Mallaby said.

In its report to the bank board on Monday night, the committee investigating Mr Wolfowitz's handling of the conflict of interest between his post as World Bank president and his personal life was unsparing.

Not only did the panel find that Mr Wolfowitz broke bank rules in the compensation package for Ms Riza, but it said that he had put the institution in danger.

In his time at the bank, Mr Wolfowitz had exercised "questionable judgment and a preoccupation with self-interest over institutional best interest," said the lengthy report.

"Mr Wolfowitz saw himself as the outsider to whom the established rules and standards did not apply."

It called on the board in its meeting later yesterday to "consider whether Mr Wolfowitz will be able to provide the leadership needed to ensure that the bank continues to operate to the fullest extent possible" in its mission to fight poverty.

However, Mr Wolfowitz has earned a reputation as a bureaucratic infighter during his more than 30 years in Washington, and has experience of operating amid a large field of enemies. In his rebuttal to the report, he appeared unchastened, continuing to lay the blame for the furore over Ms Riza's promotions on bad advice from the bank's ethics committee.