How Ukraine can build back better
The argument for using the Kremlin's seized assets to pay for reconstruction
Read the full article in Foreign Affairs
The world's attention has understandably been focused on the military side of the war in Ukraine. But in the next stage, the political-economic strategy may be decisive. As Tacitus once wrote of the Roman strategy in Britain, "they make a desolation and they call it peace." Russia aims to do this to Ukraine not only with missile strikes and atrocities against civilians, but also by destroying the country’s economy. Its goal is not just Ukraine’s physical destruction, it is also to grind down the country’s hopes.
So far, Russia has successfully and severely damaged Ukraine’s economic prospects. It has shut down maritime shipping—the main way the country usually exports goods—with a naval blockade. A large fraction of Ukraine’s people have already become refugees or are otherwise displaced from their homes and businesses. Ukraine’s overall economy has suffered a massive blow, and the World Bank estimates that it will shrink by 45 percent this year (although the magnitude will depend on the duration and intensity of the war).
The coalition of countries helping Ukraine, centered in the G-7 and the European Union, must therefore prepare a countering strategy. The centerpiece of it should be a bold plan to rebuild Ukraine, better than before. The expenses will be substantial: in addition to military assistance, such an effort will cost at least $500 billion, and aid will need to start flowing this month. As was the case with Marshall Plan assistance, most of this money must come in grants, not loans. Both the World Bank and the International Monetary Fund can provide technical help, but such a plan will quickly outstrip their existing capabilities. Ukraine’s allies will need new mechanisms.
A core potential source of funds: the Russian assets currently frozen by G-7 and EU governments, as well as Switzerland. That may seem like a dramatic proposal. But this is completely consistent with international norms and rules. In fact, Russia will need to rush to negotiate if it wants to limit its losses exclusively to already frozen funds. The coalition should also tightly link massive reconstruction with Ukraine’s accession to the European Union, an institution that can help it overcome past governance challenges and better adapt its economy to the future.
