Photo from Ukraine Recovery Conference, London, UK 2023.
Since 2017, friendly governments have held annual Ukraine Reform Conferences. Last year, Switzerland organized a Ukraine Recovery Conference in Lugano, but since it occurred on July 4 no senior American attended. Importantly, the European Union had decided to offer Ukraine member candidate status in June, but the Lugano conference offered little but the Ukrainian government’s presentation of its plans for reconstruction, costing $750 billion for a decade. The West hardly responded. The big economic questions were left unanswered. Would any joint coordinating body for Ukraine’s reconstruction be formed? How would it be financed?
This year the United Kingdom organized a huge Ukraine Recovery Conference in London, June 21-22, together with the Ukrainian government. Rather than emphasizing the key questions of government support and action, the British government underscored the importance of private investment and non-governmental organizations. To a considerable extent, the conference was organized as an investment fair, which appeared a bit unrealistic. Yet, the conference became quite successful.
First of all, the interest in the conference was enormous and the support for Ukraine was overwhelming. The official conference admitted 1,000 participants, including 61 governments, 400 companies, and 130 non-governmental organizations but thousands more wanted to attend. I had the honor to participate as a representative of the Stockholm Free World Forum. In parallel, many related Ukraine conferences occurred, organized by Chatham House, the London School of Economics, the European Bank for Reconstruction and Development and private corporations. The participation was at a high level. Half the British and Ukrainian cabinets attended, led by their prime ministers, and the leading light was the President of the European Commission Ursula von der Leyen. All the G-7 countries were represented by their foreign ministers, with Secretary of State Anthony Blinken leading the US delegation. Most countries were represented by their foreign ministers, while others by their ministers for development assistance. Yet, Ukraine remains a Western concern with almost no representation from other countries.
Second, although the British government had not intended that it would be a pledging conference, it became one. The day before the conference, the European Commission stated its intention to give Ukraine €50 billion over the four years 2024-27 in grants and loans. Von der Leyen and her Executive Vice President Valdis Dombrovskis elaborated on the EU plans. Von der Leyen stated that it amounted to 45 percent of the assessed financial gap of €110 billion for those four years. Many other countries led by the UK and the US offered more pledges, raising the total to some €60 billion.
Third, not only the most committed friends of Ukraine, but also the foreign ministers of Germany and France, stated without reservations that Ukraine will become a member of the EU. For obvious reasons, this was an awkward theme for the British hosts. The EU focuses on judicial reforms in Ukraine. It has evaluated that Ukraine has fulfilled two of its seven conditions for candidacy, and that it has made some progress on all the other five points. The next EU evaluation is planned for October. If it is successful, Ukraine could be allowed to start real membership negotiations, but that requires consensus among all the 27 member governments. Hungary was nowhere to be seen or heard.
Fourth, many prominent politicians, heralded by von der Leyen, claimed that Russia will have to pay war reparations to Ukraine, and several called on the utilization of Russia’s sovereign central bank reserves in the West to be used, though it was not clear how that would be done. This topic received more attention than I had dared to hope for. The US Congress with its new bipartisan draft legislation is taking the lead, tightly followed by the EU. Canada has already adopted such legislation but not implemented it. Since the EU has found nearly €200 billion in Russian Central Bank Assets in Euroclear in Belgium, EU actions are becoming especially important. Von der Leyen and Dombrovskis clearly want to force Russia to pay for the reconstruction of Ukraine with these funds, but they are encountering resistance from the Commission’s lawyers and some member countries, notably Germany.
Fifth, the British government had made political risk insurance to stimulate private investment an important topic. Some international agreement was supposed to be concluded on this topic, involving the World Bank’s MIGA, the EBRD, and bilateral export credit agencies, but the actual outcome is unclear to me.
Sixth, Blackrock and JP Morgan made a big deal about a private investment fund that they intend to set up together for Ukraine. Blackrock made a presentation about it that I did not attend. Apparently, they are hoping to gather a fund of $5-10 billion over five years. While significant if successful, such private initiatives cannot do much to cover Ukraine’s enormous needs for recovery and development of at least $400 billion, according to the World Bank. Previously, in good years Ukraine has received 3-4 percent of GDP a year in foreign direct investment. If the GDP would return to $200 billion of 2021, that would be $6-8 billion a year, and after the war foreign investment is likely to be far less. Moreover, much of the purported FDI was undoubtedly Ukrainian money coming back home from offshore havens. Private investment is of course vital, but government expectations must become realistic.
Seventh, international government financing for the Ukrainian budget for 2023 was not much discussed since it is fortunately perceived as being sufficient at about $40 billion – unlike in 2022. The improved budget financing has led to quickly declining inflation and rising currency reserves. The EU and the US are the two dominant donors with the IMF taking the third place.
Most panels had a dozen speakers, but even so they were quite substantial and informative. It is striking how many good English-speaking representatives Ukraine can present both from the government and the private sector. President Zelensky and his chief of staff Andriy Yermak spoke on video, while the government delegation was led by Prime Minister Denis Shmyhal.
My main disappointment was that I did not perceive any progress in the organization of Western economic support for Ukraine. Since last October, the G7 has become the driving force and it has formed a triumvirate with high-level representatives from the United States, the EU, and Ukraine with a secretariat in Brussels and a branch in Kyiv. The European Commission is now organizing a Ukrainian service with 70 professionals, which appears to become the kernel of a Ukraine support agency, but so far it is only a multiagency Donor Coordination Platform.
The West is not only G7. All Ukraine’s donors should be invited to participate on an equal basis as in the Ramstein military cooperation. A strong and accountable executive is needed for Ukraine’s reconstruction. The Ukrainian government must also be given a strong role in the reconstruction body, and Ukraine’s eminent civil society must be given a say. I hear in the grapevine that the Ukrainian called for international funding to go to the Ukrainian government’s recovery fund but naturally encountered firm resistance from Western partners. An accountable reconstruction body needs to become operative so that it can receive and disburse funds with appropriate auditing. This also means that little discussion occurred about the eventual allocation of Western funding. Many Western government representatives emphasized their good cooperation with various local authorities.
At the LSE, Kyiv School of Economics Professor Tymofiy Mylovanov argued that a separate Ukraine agency is needed, because in any existing international financial institution other stakeholders object to Ukraine becoming too dominant, and Ukraine will need very substantial funds. Moreover, among the IFIs the IMF inevitably takes the lead and Ukraine’s main problems are reform, reconstruction and development, not macroeconomic stability. The Western ideas of financing Ukraine remain confused. On the one hand, they want to finance the private sector, but the Ukrainian private sector consists of big enterprises considered
oligarchic and enterprises that are too small for Western international financial institutions. As a consequence, Western IFIs finances almost only foreign investors in Ukraine, which makes little sense. The actual Ukrainian private investors should be supported. The two top issues on the economic Ukraine agenda now are to organize a full-fledged separate Ukraine Reconstruction Agency and to sort out all the judicial intricacies to make sure that Russia is forced to pay war reparations to Ukraine from its immobilized central bank reserves in the West.
Anders Åslund and Andrius Kubilius have published the book “Reconstruction, Reform, and EU Accession for Ukraine” (Stockholm: Free World).
Anders Åslund
Senior fellow at the Stockholm Free World Forum
