The problem with the World Bank is much bigger than its president, Paul Wolfowitz.

The publicity around Wolfowitz’s ethical lapses in securing a salary raise for his girlfriend obscures what’s really wrong with the World Bank. One need only look at the world’s 3 billion people who live on less than $2 per day to see that as far as its stated mission of eradicating poverty around the world goes, the World Bank has failed miserably.

All over Latin America and in poor countries in other parts of the world, the World Bank and its sister lender, the International Monetary Fund (IMF), are seen as instruments of U.S. foreign policy–not as defenders of the poor. Both now face a crisis of legitimacy.

Venezuelan President Hugo Chavez announced last month that his country would pay off its remaining loans to the World Bank five years early–saving Venezuela an estimated $8 million in interest. Although the South American country has not taken out any major new World Bank loans since Chavez took office in 1999, it had a previous outstanding debt of $3.3 billion. Not any more.

Venezuela even went a step further and pulled out of the World Bank and the IMF entirely–an unprecedented move in the institutions’ 62-year history.

Ecuador’s new President Rafael Correa recently told the lead World Bank representative in his country to leave, and declared him persona non grata. Correa accused the World Bank of blackmail.

Although Ecuador is South America’s second-largest oil exporter, most of its population lives in poverty. Unfortunately, the majority of Ecuador’s oil income for several years has been paying off debt owed to international lenders, including the World Bank and the IMF.

In an effort to increase government spending on health and education, Correa, when he was finance minister in 2005, asked the Ecuadorian congress to modify a law that would allow him to tap into Ecuador’s oil revenue. As a result, the World Bank canceled a previously approved $100 million loan.

Argentina and Brazil–the largest economic powers in South America–have also made attempts to redefine their relationships with the institutions. Both have paid off their debts to the IMF, and are collaborating with their neighbors on establishing alternative financing mechanisms.

One such mechanism is the Bank of the South–a new development bank funded and operated by the countries of South America. The Bank of the South is an attempt by the South American nations to not only distance themselves from the global financial institutions, but also to break the region’s historical dependence on Washington. Other initiatives include an alternative regional trade agreement and a South American “union,” both of which exclude the United States.

The Bank needs to do some serious soul searching. Otherwise, the institution itself, like Wolfowitz, may need to find another job.