April 30 (Bloomberg) -- Paul Wolfowitz, fighting to keep his job as World Bank president, told bank directors today that he won't resign and that allegations over his companion's pay raise are ``bogus.''

Wolfowitz, appearing before a panel of seven directors this morning, argued that the board's ethics committee twice signed off on the deal under which Shaha Riza was moved to the State Department, according to an opening statement released by his lawyers.

``To criticize me when I did nothing other than attempt in good faith to follow the guidance of the ethics committee would be unwarranted and unfair,'' Wolfowitz said. ``Moreover, it would be harmful to the institution.''

The argument may not be enough to keep Wolfowitz in office as employees, aid agencies and some European governments press for his resignation. Opposition to Wolfowitz is hardening among World Bank directors, said an aide to one of them, as they consider how best to shore up the group's credibility.

``The damage that has been done, I don't think can be repaired if Mr. Wolfowitz stays,'' Edwin Truman, a senior fellow at the Peterson Institute for International Economics in Washington and a former U.S. assistant Treasury secretary, said in an interview earlier.

The panel looking into Wolfowitz is to make recommendations on his future to the full 24-member board. Wolfowitz, the former U.S. deputy defense secretary, has said his fate is in the hands of the board.

Ultimately, board members must answer to the governments they represent. The U.S. and some African nations have stood by Wolfowitz, while France, Germany, the Netherlands, Luxembourg and Switzerland have been critical.

Bush Support

U.S. President George W. Bush, who picked Wolfowitz for the post in 2005, repeated his support today at a news conference following a meeting with German Chancellor Angela Merkel.

``My position is he ought to stay and he ought to be given a fair hearing,'' Bush said, adding that he hadn't discussed Wolfowitz with Merkel. Merkel said only that ``this ought to be a very transparent, very candid conversation.''

In Ottawa, Canadian Finance Minister Jim Flaherty said the panel's work is ``nearing completion.''

``I look forward to having an opportunity to see the report of that committee, which I understand may be available in the next couple of days,'' Flaherty said at a news conference after meeting with his Mexican counterpart, Agustin Carstens.

`Fair Process'

Carstens, chairman of a committee of ministers that overseas the World Bank and the International Monetary Fund, repeated the group's statement expressing ``concern'' about the situation. ``The key issue is to have an expedient and fair process,'' he said.

The panel could recommend firing or censuring Wolfowitz, said a person familiar with the process who asked not to be identified. A third option would be to present findings to the full board without suggesting a course of action.

Under articles of agreement drafted in 1944 when the bank was created, ``the president shall cease to hold office when the Executive Directors so decide.''

Oxfam International, Britain's biggest aid organization, called Wolfowitz's leadership ``untenable.'' The bank's role in fighting poverty has been ``deeply compromised,'' Jeremy Hobbs, Oxfam's executive director, wrote in a piece today in the Guardian newspaper.

Wolfowitz, 63, today said he is the victim of a ``smear campaign,'' and that quitting would be harmful to the institution and set a ``damaging precedent.''

`Plainly Bogus'

``I will not resign in the face of a plainly bogus charge of conflict of interest,'' Wolfowitz said. ``I do not believe that doing so would serve the interests of the world's poor, who are supposed to be the first concern of us all.''

Riza, 52, will also appear before the panel today, said a person familiar with her plans.

Shortly after he took over in June 2005, Wolfowitz told directors of his relationship with Riza and offered to recuse himself from decisions affecting her if she remained at the group, according to documents released by the board. The board's ethics committee declined his request, telling him to arrange a transfer and recommending a promotion that would ``recognize'' the potential disruption to her career.

Career Disruption

Wolfowitz then told the bank's human resources director to lift Riza's annual salary to $180,000, with further guaranteed increases of about 8 percent a year. After her first annual raise, Riza earned $193,590 in her State Department job, free of income taxes.

At the end of Wolfowitz's term, she was to be offered a promotion to the level of director, with a further promotion to vice president should Wolfowitz's tenure be extended.

In January last year, an anonymous staffer sent directors an e-mail with details of the promotion. The e-mail ``did not contain new information warranting any further review,'' Ad Melkert, then chairman of the ethics committee, wrote in a memo.

Former Malaysian Finance Minister Anwar Ibrahim, who said he admires Wolfowitz's ``passion'' for his job, said the onus is on the bank chief to explain the raise for Riza.

``He has to really explain and they have to see whether the increase in terms of remuneration was commensurate with the services,'' Anwar, who has known Wolfowitz for 20 years, said in an interview in Kuala Lumpur today.

Wolfowitz's future may hinge on more than questions of an alleged conflict of interest.

Iraq Record

His record as an architect of the Iraq war won him enemies from the start, and plans to step up lending to Iraq and open an office in Baghdad exposed him to charges that he was using the bank to advance U.S. foreign policy.

Detractors charged that Wolfowitz used his anti-corruption campaign selectively to reward U.S. allies and punish critics.

He antagonized senior managers with his appointments of two advisers, Kevin Kellems and Robin Cleveland, recruited from the Bush administration. Those appointments will also be a subject of the inquiry by the board panel.

To contact the reporters on this story: William McQuillen in Washington at bmcquillen@bloomberg.net;

Last Updated: April 30, 2007 15:27 EDT