July 22, 2024, marks the 80th anniversary of the Bretton Woods conference, during which the coalition of allies in World War II signed the agreement establishing the major international financial institutions that formed the International Monetary System. This system would be overseen by the International Monetary Fund (IMF) and the World Bank, with its first element, the International Bank for Reconstruction and Development (IBRD). Later, four more organizations were added to the World Bank. Additionally, the creation of the World Trade Organization (WTO), initially called the General Agreement on Tariffs and Trade (GATT), was added to these two great institutions. These three bodies conditioned the creation of the International Financial System and created the conditions for a more integrated and internationalized world after the Second World War. The members of these bodies have gradually increased, but all participating countries in Bretton Woods are considered the founders of these three institutions.

The Bretton Woods agreements were a compromise between two plans, the British and American, with the American plan having more political weight. Besides the creation of the IMF and the World Bank, the most important event was that the US dollar finally became the currency of international payments and consequently the currency of monetary reserves of almost all capitalist countries. Subsequently, the United States made it clear to its allies that the payments for the development of Europe after the war (Marshall Plan) would not be returned to gold, but to dollars. Western world leaders agreed, severing the dollar's bond with gold. Despite this, until 1971 the US maintained the exchangeability of the dollar to gold.

In the beginning, the IMF was the "main bank" of the member states, mainly developed economies, but its membership grew to include not only developed countries but also so-called developing countries or poor countries, which in some cases temporarily did not even pay participation fees. Then, in the 1970s and 1980s, as the Bretton Woods system collapsed and global capital flows increased, the IMF became a "firefighting" organization (to put out crises), focusing on debt crises in Latin America and other countries with a fragile macroeconomic balance among its members.

If the 1980s gave rise to the concept of the Washington Consensus, the IMF became its primary representative. However, the period following 1989, often seen as the golden decades of globalization, was far from smooth sailing. Crises erupted in various regions, including Mexico, the Middle East, Southeast Asia, Russia, and later in Argentina and Brazil. The stringent conditions imposed by the IMF faced strong criticism, even from prominent economists in the West.

As China's economy grew, it sought greater influence within the IMF, advocating for changes in voting rights. Meanwhile, European leadership within the IMF, under agreements with the governments of former German Chancellor Angela Merkel and the Obama administration, directed IMF resources towards bailouts for the eurozone.

The post-Berlin Wall era and the collapse of communist regimes in Eastern Europe saw these countries undergo democratic political reforms and transition to market economies. Countries from the former communist bloc, including Albania, joined the IMF and the World Bank. During this period, under the leadership of figures like Michael Camdessus, the IMF focused on economic stabilization policies, fiscal and budgetary reforms, banking sector restructuring, privatization of state-owned enterprises, and market functioning.

Significantly, some of the largest IMF programs in history were implemented for Greece, Ireland, and Portugal during the 2008-2012 financial crisis. However, promised changes to voting shares, particularly for China and other emerging markets, faced setbacks in the US Congress, driven by the "America First" principle advocated by Republicans. By 2016, China's voting share had only increased to just over 6 percent, far below the 16.5 percent held by the US.

In the past decade, under the leadership of Dominique Strauss-Kahn, Christine Lagarde, and Kristalina Georgieva, the IMF has undergone significant evolution. They have revised previous biases towards fiscal austerity and absolute freedom of capital movements, opting for more nuanced approaches to large and politically sensitive loans. The IMF has expanded its role to include issues like women's labor market participation, inequality, and climate change. Particularly since 2020, it has taken proactive measures in responding to major global crises such as the COVID-19 pandemic and conflicts in regions like Ukraine and the Middle East. Moreover, the IMF has been actively engaged in analyzing and advising on economic policies in many African and Latin American countries.

However, despite these updates to its agenda, a critical question remains: who and what do the Bretton Woods institutions truly represent today? As highlighted by economists like Martin Wolf, it's evident that the global economic balance is shifting from west to east. At the G20 meeting in New Delhi in September 2023, approximately 59.1% of the IMF's voting shares were controlled by countries representing only 13.7% of the world's population. This discrepancy is particularly stark considering that the combined voting share of India and China, two major emerging economies, amounted to only about 9%. This imbalance raises concerns about whether the current governance structure of the IMF accurately reflects the emerging economic realities and global power shifts that are shaping the future of the world economy.

Albania and the IMF – 33 years of cooperation

On October 15 of this year, Albania will complete 33 years as a member of the Bretton Woods institutions, the IMF and the World Bank. The significance of this date lies not simply in a signature and membership. Membership in the IMF and the World Bank meant that Albania had the opportunity to develop its crisis and development strategies, aid programs, investment programs, programs to attract foreign investments and advanced technology, and to implement structural reforms and market privatization, among others.

Albania's path of cooperation with the IMF over these 33 years of transition cannot be deemed as universally successful, given differing stances and occasional "zigzags" in agreements and their implementation. However, cooperation, support, and guidance from this international institution have remained highly beneficial and successful. Albania has entered into 8 agreements with the IMF since becoming a member, as detailed in the table above.

Through programs with the IMF during Albania's economic transition, various objectives have been pursued in different periods. For instance, from 1992-1993 (under the Stand-By Program), the priority was injecting market forces into the economy. During 1993-1996 (in the ESAF Program), policies focused on consolidation and stabilization to ensure growth. The period of 1997-1998 (under the EPCA Program) prioritized fiscal consolidation amidst post-conflict emergency conditions. From 1998-2001 (ESA/PRGF Program), efforts concentrated on fiscal consolidation, controlling and closing pyramid schemes, and privatizing banks. From 2001-2006 (PRGF Program) and subsequently 2006-2008 (PRGF EFF Program), priorities included creating a macroeconomic environment for development, improving the business climate, spending policies, poverty reduction, energy sector improvements, and balance of payments support. In recent years, the IMF has supported Albania in economic recovery, post-earthquake reconstruction, and mitigating the impacts of the COVID-19 pandemic.

The IMF has also provided technical assistance to Albania across various areas during the transition period, including public expenditures and quality, taxation and customs, bank supervision, monetary policy at the Bank of Albania, balance of payments, financial governance, government statistics, and more.

REFORM OR A NEW BRETTON WOODS?

There are some policies of these institutions that, after 80 years of operation, appear somewhat contrary to the emerging trends in the future of the world economy. This is due to ongoing changes and evolving economic balances, especially in light of significant climatic shifts, rapid technological advancements, including Artificial Intelligence, and recent global crises such as the financial crisis of 2008-2012, the COVID-19 pandemic, and geopolitical tensions like the Russia-Ukraine conflict and issues in Gaza.

According to numerous studies, the world's 10 largest economies by 2050 will likely include the US, China, India, with the EU continuing to play a significant role. This generational shift in economic power from advanced to developing economies, particularly in Asia and Latin America, is anticipated within the next 25 years. Analysts project that the global economy could double in size by 2050, driven largely by technology-driven productivity gains.

In light of these developments, debates are already underway about creating a monetary and economic order suitable for the 21st century, potentially necessitating a new Bretton Woods agreement. Many analysts and specialized institutes argue that effectively addressing 21st-century challenges requires a reformed global economic and financial architecture. Key priorities highlighted in this reform process include:

-Granting developing economies greater voice in multilateral institutions.

-Strengthening the Global Financial Safety Net (GFSN) to better support developing economies facing climate change and macroeconomic risks.

-Establishing an international mechanism for fair and swift resolution of sovereign debt crises.

-Scaling up financing for climate change mitigation and adaptation, ensuring all financial flows align with the goals of the Paris climate agreement.

-Enhancing international, national, and sub-national development banks to finance structural transformation and sustainable development, particularly in climate resilience.

-Advancing towards a multilateral currency and reserve system centered on the IMF's Special Drawing Rights (SDRs).

-Establishing policy coordination mechanisms between the IMF, regional financial institutions, and countries to manage capital flow volatility across regions and economies.

-Strengthening the international tax architecture to promote equitable, inclusive, and sustainable development.

These priorities reflect a growing consensus on the need for comprehensive reforms to address current and future global economic challenges effectively.

Of course, without the will and decision-making of the USA and Western countries (especially the issue of representation quotas), which today remain locomotives of global economic development, these issues can hardly be considered. Other analysts claim that: the world is changing, new economic unions are emerging (and developing rapidly (BRICS) and after every major change, there is a need for new agreements and they throw the idea, among others, of an agreement of new, a new Bretton Woods". Meanwhile, "the BRICS claims, apart from the economic and monetary union, also for expansion and political cooperation (Putin threw out the idea of ??creating the Parliament of the BRICS countries,) But...

Will there be a new Bretton Woods?

This is a question that many ponder silently, as its answer holds profound implications. The uncertainty revolves around who or what will anchor a new Bretton Woods-like system: will it be the dollar, the euro, a combination of currencies, or perhaps a universally backed digital currency?

The BRICS countries have signaled their desire to move away from the dollar, yet despite comprising 42% of the world's population and 30% of its landmass, they currently contribute only 23% of global GDP and 18% of world trade. Their intra-BRICS trade stands at a mere 6% of the total.

According to projections by the International Monetary Fund (IMF), the BRICS economies could represent a third of the world economy by 2028 and lead the global economy by 2075. However, today's reality still sees about 60% of international trade conducted in US dollars, with nearly 40% in euros (with a small portion in local currencies).

While it's acknowledged that the dollar's dominance has somewhat waned since the rise of the euro, history reminds us that hegemonic shifts are not unprecedented. Sterling lost its dominance two centuries after England's repositioning in the international market, and the Netherlands saw its influence decline a century after the tulip crisis.

Anticipation for change lingers, but the timing and nature of this transformation remain uncertain. Patience is required; the evolution may unfold over a prolonged period.

*Academician Prof. Dr Anastas Angjeli is a former Finance and Economy Minister, SP MP, founder and president of the Mediterranean University of Albania