Ukraine — what has been destroyed so far and who is paying?
Although Vladimir Putin failed in his plan to crush Ukraine with military force, his ambition to destroy its independence has not diminished. As the latest Russian offensive fails on the outskirts of Bakhmut, the Kremlin is moving towards a strategy of economic attrition designed to turn Ukraine into a failed state.
By cutting it off from foreign markets, deterring foreign investment and preventing the return of refugees, Putin believes he can still force Ukraine back into Russia’s sphere of influence, stealthily realizing what his troops do not failed to deliver on the battlefield.
EU and US policy must now undergo an equivalent transformation. The need to support the modernization of the Ukrainian armed forces will remain but must be accompanied by a financial plan capable of guaranteeing the long-term viability of the country.
The revival of the Ukrainian economy and the reconstruction of its destroyed infrastructure must be at the heart of all this. The reconstruction process must begin even as the fighting continues, demonstrating the willingness of Ukraine’s international partners to remain at its side.
The task is already immense. In addition to the loss of more than 50% of Ukraine’s energy infrastructure and much of its transmission network and industrial capacity, around 150,000 residential buildings have been damaged or destroyed so far. . The costs of reconstruction have been estimated at $411 billion to $1 trillion (€378 billion to €919 billion), and they are rising. This invites big questions about how these sums can be raised and disbursed.
No progress has been made in agreeing on the structures needed to organize the reconstruction effort since 58 countries took part in the Ukraine Recovery Conference last summer.
That must change by the time the conference resumes in London in June. In particular, the Ukrainian government will have to give way in its desire to control the distribution of funds raised by international donors.
The beleaguered voters in Europe and America will not consent to the provision of aid unless they are sure it will be spent on those who need it most. The task will have to be undertaken by an international agency in which donor countries have significant powers of oversight and influence, perhaps on the model of the European Agency for Reconstruction, which administered the program of EU aid to Kosovo.
Securing the necessary funds to begin reconstruction will be the next challenge. The EU and others have already committed significant sums, but there are limits, both political and financial, to the aid that can be provided, as many countries grapple with their own economic problems. . Private investment will provide another source of financing, and this can be encouraged by accelerating Ukraine’s accession to the EU and providing the long-term security assistance needed to build business confidence.
Most reconstruction costs would obviously have to be borne by Russia.
With large amounts of Russian assets currently frozen in the West, some want this to begin even without Russian consent. The Russian central bank’s frozen $300 billion reserves are an option, but there are significant legal hurdles as well as concerns over the precedent of seizing sovereign assets.
The position of the European Commission is that these assets could only be used for the reconstruction of Ukraine if Russia accepted as part of a possible peace agreement, linked to the lifting of sanctions. However, these funds are unlikely to be available in the short term.
The private assets of wealthy Russians frozen since the start of the war are another potential resource. These are thought to total around $60 billion in the EU, US and UK combined.
Yet even seizing these assets will require changes to the law in each jurisdiction and can still be challenged in court. In each case, the seizure must be linked to a specific and provable crime. The recent decision by the EU General Court to overturn the sanctions imposed on the mother of Kremlin oligarch and mercenary leader Yevgeny Prigozhin illustrates the difficulty.
One way to speed up the flow of funds would be to solicit voluntary donations from the oligarchs for a “repentance fund”, as suggested by Davyd Arakhamia, the leader of President Volodomyr Zelensky’s party in Ukraine’s parliament.
A precedent already exists following the UK’s decision to release the $2.6 billion from the sale of Chelsea football club by Roman Abramovich on the condition that it be donated to humanitarian causes in Ukraine. The terms of such a fund should be tough to prevent pro-Kremlin oligarchs from evading sanctions. All unfrozen money should go to Ukraine, Putin’s war should be condemned unequivocally, and there could be no immunity for those guilty of crimes.
One way or another, the funds will soon have to start flowing. The Ukrainian conflict is about to enter a new phase; one in which non-military factors should prove decisive. The battle for Ukraine’s economic survival will be at the heart of these. All the support that’s been given so far will have been wasted unless it’s a battle we’re equipping them for.