Russian reparations: making sure Putin pays for Ukraine

Sergei Lavrov, Vladimir Putin’s foreign minister, seemed outraged as he accused the EU of “theft”. The bloc’s officials were discussing the possibility of using frozen Russian
state assets to fund the reconstruction of Ukraine.

Yet the cash in question is not inconsiderable, particularly when taking the devastation of entire cities into account.

At the onset of the war in Ukraine, the West froze about half of Putin’s $640bn (£524bn) war chest of foreign assets, cutting the Kremlin off from $300bn held in overseas accounts.

Seventy-three European Parliament members have now called for the assets to be liquidated and sent to Kyiv, writing in a letter to foreign policy head Josep Borrell: “It is equally fair that Russia’s state assets are also dedicated to support the victims of Putin[’s] aggression.”

As signs of normal life return to Ukraine, with some construction works beginning again and businesses reopening, there are questions over how it will fund its post-conflict rebuild. The country’s economy is set to plunge by almost a third this year, yet rebuilding costs are expected to come at a price of more than half a trillion dollars – and Putin’s attack is only dragging on.

Hlib Vyshlinsky, director of Kyiv’s Centre for Economic Strategy, has been visiting Lviv, close to the Polish border.

“It is totally peaceful now, there were no air defence warnings today or yesterday, which is quite unusual,” he says, hoping it is a sign Russia is running low on missiles.

When it comes to reconstruction, the priority is safety then rebuilding roads, he adds: “The sequence is the following: first they need to clean and de-mine the areas [that were occupied by Russian forces], then they repair the roads if needed.

“In terms of financial resources, the biggest issue is bridges which were blown.”

But this does not come cheap, and the “financial aid Ukraine receives is not enough to cover its basic budget deficit,” says Vyshlinsky.

He says the National Bank bought $1.7bn worth of government debt last month, in effect printing money to fund the gap.

Western nations have discussed sending more cash – the EU, for instance, is considering issuing debt jointly across its members, potentially offering €15bn (£13bn) in cheap emergency loans.

Longer term, a scheme akin to the post-Second World War Marshall Plan has been mentioned, though that took several years to appear and the authorities in Kyiv will be keen for a quicker solution.

Kyiv’s Centre for Economic Strategy’s Vyshlinsky suggests offering extra guarantees or insurance to investors putting their money into the region, to avoid abandoning swathes of the country to permanent economic depression.

Perhaps most important will be encouraging refugees to return.

The International Labour Organisation estimates that of the 5.2m refugees who have left Ukraine, 1.2m were of working age.

The full material was published on The Telegraph.