Nothing should prevent the global community from stopping Russia’s heinous aggression against Ukraine and providing critical short-term support to keep the Ukrainian government functioning. But planning for Ukraine’s reconstruction must be undertaken, even if the ultimate dimensions and costs are unknown, as the recent Ukraine Recovery Conference in Lugano, Switzerland showed.
Much of the current thinking suggests that the European Union should lead the organization and management of the reconstruction effort in conjunction with the Ukrainian authorities. This is clear from the study by the Center for Economic Policy ResearchA plan for the reconstruction of Ukraine’ as well as the European CommissionRebuild Ukraine’ proposal.
The role of the EU will prove indispensable. It absolutely must play a leading role in the reconstruction of Ukraine. Ukraine’s candidate status for EU membership is very welcome, improving prospects for fundamental governance reforms that have eluded Kyiv for decades.
But giving Brussels the responsibility for Ukraine’s reconstruction may not be in Ukraine’s interest.
Ukraine’s first challenge is to list the different tasks to be done, not who should be responsible for them. Many actors will have different roles and relevant expertise. No one organization is likely to have the bandwidth to oversee all areas. Specialization and a certain decentralization may be the order of the day.
Reconstruction will be a global effort. The United States plays the lead role in supporting Ukraine’s defense. It will also provide large-scale economic support. The same will apply to non-EU donors. The United States has long wielded significant influence in Kyiv, often greater than Europe. The United States is the main shareholder of the International Monetary Fund and the World Bank, organizations that will play a leading role.
More generally, the G7 – both at the level of finance ministries and G7 ambassadors to Kyiv – has long been an influential player in encouraging Ukrainian reform and supporting Kyiv.
Over the past decade, Europe has been faced with the existential crisis of the euro. While notable achievements were made to overcome it, such as the creation of the European Stability Mechanism and the Banking Union, these were only achieved when Europe seemed to stare into the abyss. Understandable differences between member states have proven extremely difficult and time-consuming to bridge, even in the face of a credible risk of redenomination. Brussels was often paralyzed between member states and had to bow to the most powerful. The global perspective was often not part of the European equation.
These same trends – in particular the divergences between member states and international views on economic sustainability – were very visible in the EU’s handling of the Greek crisis. Brussels was once again apparently caught between the two. The global perspective and external views have taken a back seat.
If not the EU, then who?
It is worth thinking about the constituent parts first. Ukraine will need humanitarian assistance and rapid reconstruction as a priority. In terms of humanitarian aid, various UN agencies have expertise in helping refugees and feeding people, as do a range of donors. In quick-start reconstruction, the World Bank has considerable experience, as evidenced by Bosnia. In collaboration with the Ukrainian authorities, the Bank could develop a similar plan with others, such as the European Bank for Reconstruction and Development and the European Investment Bank.
Ukraine will need a medium-term economic and financial plan. This is an area where the IMF should play a leadership role. The plan will have to bring together economic reforms, new money and any debt relief in a comprehensive, coherent and sustainable framework.
For example, the cost of a World Bank-led priority reconstruction plan should fit into a medium-term financing plan, alongside expected inflows of new funds. The IMF will want to provide its own stabilization support, including structural reforms. The road to EU membership will help shape them.
Donor conferences should raise funds for Ukraine – the EU, possibly together with the World Bank, could co-chair them. The amount of donor aid will strongly influence Ukraine’s growth rate during the reconstruction phase.
The IMF will have to determine what constitutes a sustainable debt burden and Ukraine’s possible repayment capacity to public and private entities, given the destruction of its economic base. Expanding support in the form of grants and highly concessional terms will be essential. The international discussion on how to deal with frozen Russian assets will feature prominently.
On the ground in Ukraine, the reconstruction effort will attract many official donor agencies and private sector providers. Managing such donor coordination can be challenging for the authorities. However, the G7 embassies in Kyiv have long worked well together, attracting international financial institutions and the EU.
With the outbreak of Russia’s barbaric aggression against Ukraine, the G7 has demonstrated that it can be a cohesive group, especially in mobilizing support for Ukraine and countering Russia. The G7 can bring a global perspective and the power of its persuasion to the table. This can help avoid European introversion. The G7 Finance Ministries and MPs, as well as the G7 Embassies on the ground in Kyiv, have long worked well together.
To the extent that the building blocks of Ukraine’s reconstruction effort need to be brought together, the G7 could be a better global governing body, respecting and leveraging the roles and responsibilities of diverse actors around the world.
Mark Sobel is the U.S. President of OMFIF.