Introduction to the Crisis in Ukraine
The war in Ukraine has been ongoing for over 3.5 years, and the financial burden on the country is immense. With an estimated annual cost of $100 billion to keep Ukraine in the war, and potentially $150 billion to give them a chance of winning or ending the war early, the financial support from Western countries is crucial. However, with the US pulling back on its financial support under the Trump presidency, Europe and other countries are having to step up to fill the gap.
The Role of Central Bank of Russia Assets
One potential solution to funding Ukraine’s war efforts is to utilize the $330 billion in immobilized Central Bank of Russia (CBR) assets sitting in Western bank accounts. This idea has been floated for years, but it has only recently gained traction as Europe realizes the enormity of the financial burden on Ukraine. The author of this article has been advocating for the use of CBR assets to fund Ukraine’s war efforts for years, but has been largely ignored.
The Debt Restructuring Debacle
In the past, efforts have been made to restructure Ukraine’s debt, with the goal of freeing up funds to support the war effort. However, these efforts have been largely unsuccessful, and have even been counterproductive. The debt restructuring has taken momentum away from the campaign to seize CBR assets, and has ensured that Ukraine failed to get the funding it needed to win or end the war quickly.
The Current State of Affairs
An IMF mission is currently in Ukraine for the latest review under the Extended Fund Facility (EFF). However, the program is underfunded by tens of billions of dollars, and new money needs to be pledged. The existing €50bn EUMacro-Financial Assistance (MFA) and the $50 billion from the interest stream on immobilized CBR assets are almost exhausted. European member states face significant budget constraints, and it is unclear where the necessary funds will come from.
The Debate Over CBR Assets
The use of CBR assets to fund Ukraine’s war efforts is a contentious issue. Some countries, such as France and Belgium, are hesitant to confiscate the assets without a sound legal basis, citing concerns about undermining confidence in the sanctity of property rights in Western jurisdictions. However, the author argues that there is a clear legal basis for confiscation, and that the risks are overstated.
Alternative Solutions
If confiscation is not possible, there are alternative solutions that could be explored. For example, the CBR assets could be invested more innovatively to generate higher returns, which could help fill financing gaps. The author has proposed a sovereign wealth-style structure, the Agency for Ukrainian Reconstruction and Accession to the EU (AURA), which could achieve this goal. Another option is to issue Victory Bonds, which could be purchased or funded by the CBR assets. This would allow Ukraine to access the underlying assets without taking away Russia’s property rights.
Conclusion
The situation in Ukraine is dire, and the financial burden on the country is immense. The use of CBR assets to fund Ukraine’s war efforts is a crucial step that needs to be taken. While there are alternative solutions that could be explored, it is unclear where the necessary funds will come from without the use of CBR assets. The IMF and European governments need to take a realistic look at the situation and come up with a plan to provide the necessary funding to Ukraine. The author urges European governments to take action and find a solution to the funding crisis, rather than relying on empty promises and assurances. The fate of Ukraine and the stability of the region depend on it.
