Architecture

Given the complexity of this effort, strong leadership is essential. Unlike other blueprints, this paper does not foresee the European Commission leading the recovery in partnership with Ukraine’s government, because Brussels has neither the necessary political nor the financial heft. Instead, the G7 countries should lead the recovery effort and encourage other countries to participate in this RecoverUkraine platform. Together with Ukraine, the G7 countries should appoint a strong recovery coordinator to lead this effort and liaise between Ukraine’s government, the international financial institutions (IFIs), and the G7 members. The first coordinator should be an American with a global stature. This is because only the United States will be able to bring together the needed global coalition and forge consensus among Ukraine’s partners. The coordinator should build a recovery task force partnering with Ukraine and hosted and supported by the European Commission, reflecting the growing role of the EU in the recovery process as Ukraine moves forward on the path of integration and eventual membership.

The G7 should underscore its joint stakeholdership in the form of a high-level agreement reflecting the connection between Ukraine’s security and recovery and pledging to assist the country in both—though at an asymmetrical level of support with the United States investing more in security and the other G7 members investing more in recovery. In doing so, cohesion among Ukraine’s partners and allies will be greatly enhanced.

A sequenced approach with a gradual ramping up of activity should be adopted for the recovery process. It should have four phases: relief, reconstruction, modernization, and accession to the EU. Relief will involve emergency aid and basic rehabilitation as the war continues. Reconstruction will entail the rapid response to the destruction caused by the war after a ceasefire or settlement has been reached, focusing on infrastructure and mobilization of market mechanisms. Modernization is the “build-back better” phase, attracting foreign direct investment to shape a new economy and a new country that is more digital, more ecological, more democratic, and more EU-oriented. The accession phase foresees investments that are more about aligning the country with its future EU peers. The non-EU international effort will be frontloaded in expectation that the interest of the international community in helping Ukraine can be expected to wane over time while the EU’s political and financial commitment will only increase.

The creation of a new aid agency or centralized trust fund for donors is neither realistic nor advisable. Instead, the G7 and other partner countries should work through the multi-donor funds of their preferred IFI, mobilizing the strengths of different development banks and using off-the-shelf solutions to respond to this urgent need. The recovery coordinator, endowed with autonomy and authority by the G7, will need to help align conditionality principles and oversight requirements.

Financing

The size of the investment necessary for Ukraine’s reconstruction is still unclear due to the fog of war. Preliminary estimates have the cost of rebuilding the damaged Ukrainian infrastructure at more than $100 billion, a sum that is manageable for donors when spread out over years. But in-kind support, guarantees, and loans will not suffice. With continuing security challenges, Ukraine will not be “investable” soon and contributions need to be weighted toward grants. These can be available quickly, allow for greater discretion in their use, and do not harm Ukraine’s creditworthiness.

EU countries will have to make decisions about the scale and nature of their contribution soon. They can opt for a combination of direct EU budget grants; bilateral member-state loans, grants and guarantees; and ultra-long-term concessionary-term common loans. Commonly financed grants will be controversial in some member states. An increase of the relative weight of member state’s bilateral contributions or a renegotiation of the EU’s Multiannual Financial Framework will be similarly controversial. EU leaders should neither avoid nor protract this debate because other international donors, the United States first among them, will likely condition and scale their participation based on the EU’s financial lead.

The most important way to unlock the potential of private capital and thus for foreign direct investment to flow into Ukraine would be the introduction of a “war insurance” for certain private investments, backed by guarantees from international donors.

Given the scale of the potential financial commitment, unusual funding sources should be considered. The seizure of frozen Russian assets could be a meaningful contribution to funding for Ukraine, but only in the long term. While it may require a new legal basis in most donor countries and therefore take time to implement, the seizure of the frozen assets of Russia’s central bank—currently amounting to $300 billion—is a promising and consequential option. Russian retaliation will be a risk, however, and the danger of setting an unwanted precedent needs to be managed. Seizing frozen Russian private property is less of an option because it would likely be mired in legal controversy for years.

Accountability and Rule of Law

Aid to Ukraine needs to come with strings attached, especially at the projected scale and to the benefit of a country with a history of corruption. Strengthening the rule of law has an outsized significance for the recovery of Ukraine. The disbursement of reconstruction funds should be contingent on the country successfully implementing and enforcing long-standing rule of law and judicial reforms during the initial relief phase. These reforms are outlined in the European Commission opinion on Ukraine’s application for membership of the EU. Also, the EU should invite Ukraine to join the European Public Prosecutor’s Office at the earliest possible time. Membership in this body would add a level of EU oversight and contribute to Ukraine’s alignment with EU judicial standards.

An independent inspector general should be appointed, whose office would investigate accusations of misconduct and contribute to the efficient use of funds. The RecoverUkraine platform should make transparency a guiding principle of the recovery process—allowing citizens’ oversight via free media, the private sector, and civil society, which should be invited to play a role from day one.

Immediate Needs

While planning for reconstruction should proceed, successfully concluding the war and keeping Ukraine from failing need to take precedence. Planning must not distract from the urgency of prompt support, from macro-financial assistance to military aid. Ukraine’s recovery planning should not be used by its partners as an excuse for not doing what is necessary as the war goes on.

Preconditions and Goals

• History Inspires: The Marshall Plan is a source of inspiration for ambitious Ukraine aid, but a 21st century plan should adapt, not build, aid institutions.
• Support Ukraine Now: Long-term planning is necessary but should not distract from the immediate need to help Ukraine end the war on favorable terms.
• Share the Burden: A high-level international agreement connecting security and recovery in Ukraine is needed.
• Final Destination EU: The goal of recovery is for Ukraine to find its place among market-oriented democracies and, ultimately, the EU.

Architecture

• Build a RecoverUkraine Platform: An international platform to finance and manage recovery should be built, to be inclusive, accessible, and offer a low threshold of entry for donors.
• Recovery Needs Leadership: The RecoverUkraine platform should be led by a recovery coordinator, initially a high-stature American, appointed by the G7 and Ukraine.
• Build a Task Force: The recovery coordinator should set up a task force, relying on the European Commission.
• Embrace Partnership and Ownership: RecoverUkraine should embody partnership, with Ukraine taking ownership and setting priorities, and donors setting conditions.

Sequencing

• Ramp Up Gradually: Basic relief cannot wait; it is needed while the war continues.
• Be Patient Even if It Is Hard: The ongoing war greatly complicates economic planning and requires delaying decisions on long-term modernization projects.
• Recover in Four Stages: Recovery should consist of four stages: relief, reconstruction, modernization, and accession to the EU.

Financing

• Prioritize Wartime Assistance: Ukraine’s financial emergency as the war continues may require another IMF program in 2022.
• Recognize Limits: The total bill for recovery is unknowable during an ongoing war. Donors should avoid creating false certainties and raising false hopes.
• Grants First: Donor assistance should be strongly weighted toward grants.
• Enable Private Investment: A “war insurance” consisting of sovereign guarantees for certain private investments should be introduced.
• Be Transparent: For their taxpayers’ sake, donor countries and the EU should embrace a vigorous and transparent debate about the scale of their commitment.

Russian Assets

• No Impunity: Russia should be made to fund some of Ukraine’s recovery costs.
• Seizing Assets Takes Time: Seized Russian central bank assets can only become a partial funding source for Ukraine’s recovery, and only in the long term.

Accountability and Rule of Law

• Rule of Law Reforms Come First: The first tranche of long-term reconstruction funds should be contingent upon Ukraine implementing initial rule of law reforms.
• Funding Only with Strings Attached: The recovery coordinator should coordinate conditionality principles between funders and monitor reform progress.
• Transparency Builds Trust: The Ukrainian government and the RecoverUkraine platform should regularly publish recovery-related documents.
• Trust but Verify: An inspector general should provide independent oversight to guard against corruption.
• Address Corruption Concerns: Ukraine should join the European Public Prosecutor’s Office at the earliest, adding EU legal oversight to many investments.
• Civil Society at the Table: Civil society organizations should be involved in the recovery process from day one.

Quelle: The German Marshall Fund of the United States, 07.09.2022, https://www.gmfus.org/news/designing-ukraines-recovery-spirit-marshall-plan.