U.S. warns that "world is watching" Wolfowitz saga

WASHINGTON (Reuters) - The United States warned on Thursday that "the whole world is watching" to see that embattled World Bank President Paul Wolfowitz is treated fairly as critics press him to quit over a pay-and-promotion dispute.

Treasury Secretary Henry Paulson, in a measured response stressing the importance of preserving the global lender's standing, told a questioner Wolfowitz deserved fair process as the bank board prepares to consider his fate.

Some European members want Wolfowitz's resignation over a controversial pay and promotion deal he approved in 2005 for his companion, bank Middle East expert Shaha Riza, but the Bush administration has stood by the former Pentagon official.

Paulson said on Bloomberg television that he considered Wolfowitz "a dedicated and committed public servant" who had done valuable work at the World Bank. Wolfowitz has been given until Friday to respond to a bank panel report that found his actions in the pay and promotion deal broke rules.

FOLLOW THE RULES

"It's got to be fair," Paulson said. "A bank with the stature of the World Bank (and) I have the highest regard for the World Bank, the processes they use here are going to be very important, the whole world is watching."

Originally, the bank's 24-nation board had planned to meet on Friday to decide on Wolfowitz's future, but that was delayed until Tuesday, May 15, after Wolfowitz was granted two extra days to present his response to the investigatory panel.

Paulson is a governor of the World Bank and has taken a relatively restrained role in the raging debate over Wolfowitz's leadership. Each of the bank's 185 member countries appoints a governor, generally either a finance or a development minister, who helps guide the bank's operations.

European government representatives went to Treasury during an April meeting of the International Monetary Fund and World Bank to press their case to Paulson that Wolfowitz should quit.

The U.S. Treasury chief stressed his view that, whatever happens, there must be no question it is handled properly.

"We need very fair processes. This shouldn't be rushed. But I'm not going to get into outcomes and you shouldn't take that as any lessening of my support or admiration for Paul Wolfowitz," Paulson said.

There was also a call from the State Department on Thursday to let the matter run its course.

A department official said Secretary of State Condoleezza Rice had been quietly discussing the issue with European counterparts but he indicated she had basically repeated the White House's line that it still felt Wolfowitz could be an effective bank leader.

CHATS IN EUROPE

"She mentioned this in the normal course of a few conversations with her counterparts, her personal regard for Paul in the job he is doing at the World Bank," State Department spokesman Sean McCormack told Reuters.

"But we have also made it clear that World Bank processes are going to be worked through," he added.

Rice's access to European capitals provides an opportunity for the Bush administration to gauge how serious the opposition is to Wolfowitz's continued leadership.

The bank's board is divided in its attitude toward Wolfowitz's leadership -- European countries are pushing for him to step down and the United States is shoring up support for the former U.S. deputy defense secretary among a clutch of allies like Canada and a few Asian and African countries.

He has been a lightning rod for European critics since the White House nominated him in 2005 for the top World Bank post, partly because of his neoconservative past that includes a role as one of the architects of the Iraqi war while he was deputy defense secretary.

(Additional reporting by Lesley Wroughton and Sue Pleming)

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