World Bank president Paul Wolfowitz bowed to weeks of pressure and agreed to step down on June 30 to end a favoritism scandal that had rocked the poverty-fighting institution.
Wolfowitz, 63, said on Thursday he was resigning in the "best interests" of the bank, thus ending a protracted controversy over a generous pay and promotions package for his girlfriend, Shaha Riza.
"I have concluded that it is in the best interests of those whom this institution serves for that mission to be carried forward under new leadership," Wolfowitz said in a statement after three days of deliberations by the World Bank board.
Wolfowitz violated bank rules in arranging a generous promotion and pay package for Riza shortly after he assumed the bank presidency in June 2005, according to an internal World Bank report made public on Monday.
The report also said the bank gave Wolfowitz vague instructions on how to resolve the possible conflict of interest over Riza.
Wolfowitz said in his statement that he "acted ethically and in good faith" in what he believed "were the best interests of the institution, including protecting the rights of a valued staff member."
The World Bank's 24 executive directors also issued a statement that seemed tailored to meet Wolfowitz's reported demand that the bank recognize their flawed advice in the Riza affair.
The announcements drew a delicate face-saving balance, acknowledging that wrongs were done on both sides but that all parties had acted in good faith.
The statement said that "a number of mistakes were made by a number of individuals in handling the matter under consideration."
The directors pointed to successes under Wolfowitz's two-year tenure, such as debt relief, clean energy investment and avian flu projects.
However, the World Bank Group Staff Association which represents around 13,000 employees took a dimmer view, saying in a statement that Wolfowitz had "demeaned the Bank, insulted the staff, diminished its clients and dragged this institution through the mud."
The resignation deal leaves Wolfowitz in office until June 30, but with greatly reduced powers, a source close to the negotiations said.
Wolfowitz agreed to not make any major decisions on policy or personnel matters and will not attend the G8 finance ministers meeting this weekend in Potsdam, Germany, the source said.
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