Ukraine Recovery Conference in London – how much can be done while the war continues to rage?

Delegates from more than 60 countries are gathering in London for the Ukraine Recovery Conference – but how much can be done while the war continues to rage?

In the studio of the Monocle Radio is Hlib Vyshlinsky, Executive Director at the Centre for Economic Strategy, a Kyiv-based non-governmental research body focusing on promoting sustainable and inclusive economic growth.

You can listen to the full conversation under the link. The text version is here:

Joining me now in the studio is Hlib Vyshlinsky, Executive Director at the Centre for Economic Strategy, a Kyiv-based non-governmental research body focusing on promoting sustainable and inclusive economic growth.

As such, Hlib is the perfect person to speak to. Welcome to our studios, and thanks for joining us directly from the conference. Please give us a little sense of the mood at the conference. What’s the atmosphere been like? Is there a sense of determination, a bit of optimism or is everything still dominated by concerns about what’s happening on the ground?

This year is much more businesslike compared to last year’s Lugano conference in Switzerland. The main issue at the previous conference was the lack of real financial commitments.

Now, it is much different. Our international partners learned from the mistakes of the last year. So, it started yesterday with the announcement of a €50 billion package from the European Union. Today, Ursula von der Leyen reiterated this commitment.

And also, another important news came. She promised that before the summer break, European Commission would devise a mechanism for using income from the frozen Russian assets. As you know, there are over €300 billion in frozen assets, including €200 billion in Belgium.

So, that’s why the position of opinion of the European Union is significant. And it’s substantial money – just income from these assets could reach around €10 billion annually.

For this year, it is one-quarter of the international financing of Ukrainian daily budget operations. This year, we will get over €40 billion, which will cover the budget needs of Ukraine when we spend all our tax proceeds and all our domestic income on funding the military.

We’ll talk more about financing and these encouraging signs that there is unanimity, a shared belief about how that should be raised and allocated. Just on some of the rhetoric, what have Rishi Sunak and, of course, President Zelenskyy had to say? What was their tone? People might have seen and heard some extracts. But what did you make of their remarks opening the conference?

I think there is a general understanding that, like in this war of attrition, a country or allies that will win are those who could finance the war for the time it takes. It is not just an issue of military assistance. You know, it started with these military Rammstein meetings that are very successful in coordinating military aid. But then, there was this lack of coordination in financing.

So now it’s much better. But it was very clear from this keynote speech of the President of the European Commission. She said the European Commission estimates Ukrainian financial needs for the next four years at €110 billion. But like European Union is covering just 45%.

Much more commitment will be needed. There was the State Secretary of the United States, Antony Blinken. As I understand, for political reasons, unfortunately, he came with just some small additional amounts to the funding. I know this is because of the end of the financial year in the United States on September 30.

After that, the new Congress, with the domination of Republicans in the House of Representatives, will decide how long and for how much the United States will support Ukraine financially.

This funding is approximately the same as the funding of the European Union this year. So the consensus in the United States is crucial to Ukraine, not only in military terms but also in terms of making Ukraine a country that will have more financial resources than Russia to finance the war towards victory.

Tell me a bit about other concerns because one of the issues with capital allocation to these sorts of projects is concerns, and as we said in the introduction, a war, bloody and complex, continues. It seems it is attritional in character.

Are potential financiers of the campaign and critical reconstruction concerned about indemnification? How is their money protected if they agree to finance rebuilding a city or an infrastructure project and if their project becomes subject to Russian attack or destruction in conflict? Are there still worries about how the insurance and indemnification works, or are we inching towards solutions even to address those concerns?

I think we should think separately here about state funding, public services funding, and private sector help. So in financing public services, the crucial thing is rebuilding the occupied territories.

For example, you hear all the time in the news from Kherson that it is shelled, so it’s just like there are few people there. But like, for example, when we look at northern regions of Ukraine – Kyiv oblasts, Bucha, Irpin, Chernihiv, they need rebuilding so that people can return there. The same goes for Kharkiv, for example, because, like we currently have, according to our estimates, approximately 6 million Ukrainian refugees, mainly in the European Union, in the UK as well, like 1.5 million approximately in Russia and Belarus.

And, when we speak about those four plus millions that are in democratic countries, a segment of them are those who are willing to return to Ukraine, even in times of war, but they need housing, they need critical infrastructure, they need jobs.

So it’s funding that Ukraine should receive and use as fast as possible. Like now, we have the beginning of the summer, so this period [summer and early autumn] should be spent on rebuilding to enable people to return.

But for the private sector, military risk insurance is needed the most. We started speaking about it over a year ago. And during the conference today, I listened to these very formal speeches of representatives of different countries. At least in three speeches, officials mentioned funding for this insurance, which is not for free. You need to pay to insure, for example, rebuilding production facilities of private businesses so that people will have jobs. Also, there will be another stimulus for people to get back. New jobs should be created for the economy to be rebuilt, especially in Western Ukraine for internally displaced people.

For the work of such an economy, taxes should be paid, from which the army will be funded. All these financial flows are crucial for Ukraine to be sustainable in fighting such a strong enemy as Russia.

And it’s encouraging that there is increasing evidence of this holistic approach to the solutions in the longer term. Hlib, you know that we try to find opportunity and optimism even in the darkest times and your country is still gripped by so much strife and suffering, but looking to a positive future is important. Are there opportunities?

One thing that strikes me as interesting is if we look at potential EU accession even down the track, we know that there are new sustainability requirements and urban planning standards that the EU tries to push its prospective member states to reach. There is an opportunity if we look at the work of Mr Foster.

You mentioned Kharkiv, for which a considerable city-wide, coherent, holistic fix is developed. Despite all the trouble, is there even an opportunity for Ukraine to fast-track, particularly sustainable green initiatives and get to a level beyond where it might have been had the war not even happened?

Yeah, at the first stage, everything will be done fast because you need to provide some critical things for people to live. What I hear from everybody involved in financing, including international financial institutions like EBRD, is undoubtedly they are pushing for well-sought green recovery that will align with the highest standards. However, what we need a lot is good thinking. We need more than just money; we need help in rethinking how we should rebuild. Indeed, Ukraine has not enough capacity for it.

Moreover, we have a significant potential to be a provider of green energy for the whole of Europe. Ukraine has a strong competence in nuclear energy: more nuclear blocks could be built. This electricity could be exported. It could also be used to produce hydrogen together with Ukraine’s enormous water resources. This could be the source of green metals and metallurgy inputs, so that Ukraine could be an excellent sustainable energy source.

But you need to have a significant amount of funding for it, and I also want to iterate that it should not be only Western taxpayers’ money. We have over €300 billion frozen of central bank assets of Russia, frozen in democratic countries, €200 billion of them frozen in Belgium, and already there was this commitment of the European Commission to think about using proceeds from it.

However, there should be a more comprehensive solution of using the whole amount of this money for Ukrainian recovery to push reconstruction and the Ukrainian economy. One possible solution could be securitization. For example, Russia got Ukrainian recovery bonds in exchange for their money, and Ukraine got real money that Russia will pay as reparations.

That is what was reiterated today and also in previous days. We had other side events, for instance, organized by Chatham House etc., and it should be confiscation or freezing and using this money for recovery. The aggressor’s pace should send a powerful signal to other potential aggressors since Russia is not the only authoritarian aggressive state in the world.

Suppose you know that you invade your neighbour for some reason and bring death and destruction. In that case, you should pay for it. All these discussions are not legal. We worry about our businesses and investments in countries like Russia and China. Then it’s a way to a series of new wars because if the aggressor understands it will not be punished, other aggressors will follow.

Absolutely fascinating to hear from you. Thanks so much for taking a break from the conference to speak to us and joining us here for the briefing.