London conference: a lot of specifics, but money is needed (preferably Russian)

We need money to win the war. With its public statements and hundreds of private meetings, the conference was a successful step on this path.

“In a war of attrition, whoever can finance it longer will win,” a World Bank economist who researched wars’ economic aspects recently told me.
In this regard, the Conference on the Reconstruction of Ukraine took place last week in London and was rather a success.

The commitment of the European Union to allocate a total of 50 billion euros over four years, announced on the eve of the conference, is the first clear source of funding for the Ukrainian budget and the reconstruction of the country in the coming years.

Added to this was a breakthrough in war risk insurance. Because if there was a lot of talk about state needs during the last year and progress was noticeable, the private sector was left alone with its problems.

Although it was clear that without help, first of all, insurance, neither a noticeable reconstruction of what was destroyed nor the construction of a new one would be possible. Many investors are afraid to even go to Ukraine without special insurance, not to mention the construction of facilities that Russian missiles can destroy.

In addition to the significant contributions of countries to risk insurance, the agreement of the well-capitalized American Development Finance Corporation to reinsure Ukrainian risks with MIGA, the insurance agency of the World Bank, became important. The EBRD also announced its intention to develop private trade insurance with Ukraine.

This number of agreements contrasts with the results of a similar conference in Lugano, where specific financial commitments from our allies were minimal. But the daily work of finding money for Ukraine during the year gave results: about 60 billion dollars in contributions were announced at the conference.

However, specific commitments do not mean that the problem has been solved. According to the European Commission’s assessment, Ukraine’s needs for financing the state budget and reconstruction for 2024-2027 are at least 110 billion euros. This is a minimum estimate, taking into account the required and promised $43 billion just to cover the 2023 budget deficit.

The European Commission directly stated that its contribution, 50 billion euros, is only 45% of the need and gave the USA a pass. But we cannot confidently expect that in 2024 and beyond, the United States will give us $1 billion every month, as it is now.

The US budget for the next fiscal year, which begins on October 1, will be approved by a new composition of Congress, where Republicans will have a majority in the lower house instead of Democrats, as before.

At the same time, if the needs for financing the daily expenses of the 2023 budget somehow overlap, then even for urgent recovery, only half of the minimum needs estimated by the World Bank ($14 billion) are covered. Unfortunately, the new commitments announced by the partners in London did not completely close this gap.

The inability of the Allies to arrange sufficient financing for the reconstruction of Ukraine is very telling. It reflects the natural reluctance of taxpayers of partner countries to pay for the restoration of what was destroyed by the aggressor country. Instead of expecting hundreds of billions from our allies, we need to focus our efforts on confiscating the assets of the Russian Central Bank worth more than 300 billion dollars and the income from them.

In a speech in London, the President of the European Commission, Ursula von der Leyen made the first concrete promise regarding the assets of the Russian Federation. She said that before the summer vacation, Brussels would announce a specific mechanism for transferring to Ukraine the income from assets of the Central Bank of the Russian Federation located in the European Union. These revenues will reach billions of euros annually.

At the same time, even this first step caused opposition from some EU members who fear their material responsibility for the wars committed. There were also voices of those who said: “Do not collect money from Russia – you will give a signal to other potential aggressors that they will not have to pay for invasion and destruction.”

Only Russian assets can become a natural source of funds for reconstruction. There can be various mechanisms for their use, from direct confiscation to exchange for Ukrainian government bonds, as British analyst Timothy Ash suggested. Funding from partners should be important, but only an intermediate solution.

Regardless of the sources of funds, the key factor in the success of reconstruction should be trust in Ukraine and the reconstruction processes. That is why so much emphasis at the conference was placed on the presentation of the DREAM electronic reconstruction management system, which will reflect the entire cycle of the implementation of each project.

Transparency and support for communities working with open data is a prerequisite for donor funding for reconstruction.

According to Mustafa Nayem, the whole country cannot be punished for the fact that a few people in it are corrupt. The head of the State Agency for Reconstruction and Development of Infrastructure of Ukraine joked that he was speaking about this in London. Hall laughed, understanding the reference to this city’s massive laundering of dirty money by bankers, lawyers and property owners.

References to corruption in Ukraine are often a refrain of lazy bureaucrats, for whom it is easier to repeat this word than to strain and find ways to support Ukraine in wartime. We need to have an answer to this refusal. The focus on DREAM developed with donor funds and with the participation of civil society is a successful excuse.

Another thing is attracting private investments. Even before the war, this was a big problem. Even though there are many opportunities and little competition in Ukraine in many markets, large-scale investments have many obstacles and risks, even unrelated to war.

Our task is to identify and remove obstacles. The main reforms are included in the requirements for Ukraine’s membership in the EU, and any excuses like “out of time” and “undermining of sovereignty” from the officials are unacceptable. First of all, it concerns the rule of law.

After all, we need confiscated Russian assets, donor funds for budget support and reconstruction, and private investment to flood the country with money during and after the war. High-paying jobs are a prerequisite for the return of human capital to Ukraine. Its irreversible loss can become more painful for the country than the destruction of physical objects that can be rebuilt.

We need money to win the war. The conference in London, with its public statements and hundreds of private meetings, was a successful step in this direction.

The material was published in Ukrainian on Economichna Pravda.