February 21. 2024. 6:21

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Ukraine reconstruction: Progress in coordination and use of Russian assets

There is progress in the use of Russian assets to fund reconstruction efforts in Ukraine, and donor countries have established a structure to better coordinate financial assistance, Commissioner Valdis Dombrovskis said during the EU executive’s visit to Kyiv.

The US, the EU and Ukraine have agreed on a structure for financial assistance in reconstruction efforts for the latter, in which they would have roughly equal weight, under the political leadership of the G7, and with a secretariat in Brussels and Kyiv.

The new structure for the reconstruction platform should allow better coordination both of long-term reconstruction efforts, as well as the more short-term macro-financial assistance to keep the Ukrainian government solvent.

“We call it the financial Ramstein,” said Ukrainian Prime Minister Denis Shmyhal on Thursday (2 February), when 20 EU Commissioners met the Ukrainian government in Kyiv, referring to the coordination format that already exists for military aid.

The EU, with its unrivalled flair for good branding, calls the structure the “Multi-agency Donor Coordination Platform for Ukraine”.

While the political guidance for the reconstruction is provided by the G7, a group of large advanced democracies, including the US, Japan, Canada, the UK, Germany, France, and Italy, the coordination of the assistance is led by a steering committee of the US, Ukraine, and the EU Commission.

The US is represented by Mike Pyle, deputy national security advisor for international economics, Ukraine by the finance minister Serhiy Marchenko, and the EU Commission by Gert Jan Koopman, the new head of the Commission’s Directorate-General for neighbourhood and enlargement policy.

No “Ms Marshall”

According to Thomas Kleine-Brockhoff of the German Marshall Fund, this structure has the advantage of combining both long-term and short-term needs in a single governance structure.

“But it has one big disadvantage,” he told EURACTIV, arguing that the reconstruction platform lacked a strong political figure at its head that could provide the leadership to move negotiations forward when needed.

“There is no Mr or Ms Marshall,” Kleine-Brockhoff said.

Based in Brussels and with an office in Kyiv, the reconstruction platform also has a secretariat, in which G7 countries and multilateral financial institutions like the International Monetary Fund (IMF), the World Bank, the European Bank for Reconstruction and Development, and the European Investment Bank are represented.

“This shows our commitment to various sources of financing,” the Commission’s Executive Vice-President Dombrovskis said on Thursday in Kyiv. “It’s clear that donors and the private sector will need to contribute on a global scale.”

According to Kleine-Brockhoff, however, the EU would have liked to have a larger secretariat, which was refused by the US.

IMF expected to chip in

For this year, the EU has pledged €18 billion in macro-financial assistance for Ukraine. €3 billion of that was paid out in January to make up for EU commitments that could not be held in the past year.

Ukraine’s finance minister warns of inflation if $37.9bn fiscal needs not funded

Ukrainian Finance Minister Serhiy Marchenko warned on Tuesday (25 October) of macroeconomic problems of monetary financing as the Ukrainian government has resorted to printing money to finance its defence and other state expenditure.

In March, the EU is expected to pay out the next tranche of cheap loans. However, these payouts will be conditional on reforms in Ukraine.

Also in spring, the IMF is expected to decide on a sizeable loan to support the Ukrainian government financially.

While the donor platform or “financial Ramstein” is currently mostly focused on organising this rather short-term macro-financial assistance, “this will evolve into a body concerned with the more long-term needs of Ukraine,” according to Kleine Brockhoff.

Russian assets for Ukraine reconstruction

To help finance the long-term reconstruction needs, the Ukrainian government is pushing for using the frozen assets of the Russian central bank. Up to $300 billion of these assets are frozen in Europe and in America.

On Thursday, Ukrainian Prime Minister Shmyhal argued that Ukraine would need around $17 billion for what he called “rapid restoration”, which encompasses immediate reconstruction needs.

“One of the key sources of funding is Russian assets,” he said.

Indeed, there might be some movement on this front as, on the same day in Kyiv, Dombrovskis said, “it’s important to start working with confiscated Russian state assets to make Russia pay for the damages it caused in this war”.

“We’ll soon present an EU proposal on the issue,” Dombrovskis added.

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