davos Can you negotiate about the reconstruction of a country, even start it, if bombs are still falling every day? Yulia Svyrydenko, Deputy Prime Minister and Economy Minister of Ukraine, is convinced that you have to. “We are already starting to rebuild in some parts of the country,” she says. “We need to get our people back to cities like Bucha that aren’t on the front lines.”
Ukrainian businessman Viktor Pinchuk is also convinced that Ukraine’s defense and reconstruction plans must go hand in hand. Estimates of the cost range from $500 billion to $1 trillion. According to calculations by the Kyiv University of Economics, infrastructure – roads, buildings, lines – worth $95 billion has already been destroyed.
Added to this is the slump in economic output and tax revenue, as well as higher spending, for example for defence. And with every day that the war goes on, there are not only more deaths, but also billions in costs, says Torbjörn Becker from the Stockholm School of Economics, who, together with other economists, tried to quantify the costs of reconstruction a few weeks ago.
Three months after the start of the Russian invasion, it is becoming apparent that the war in Ukraine is likely to drag on for a long time. An early diplomatic solution has become increasingly unlikely. Ukrainian President Volodymyr Zelensky said on Wednesday that he currently sees no basis for negotiations with Russia. “Ukraine will fight until it gets its entire territory back.” Zelenskiy includes the Crimean Peninsula, annexed by Russia in 2014.
Top jobs of the day
Find the best jobs now and
be notified by email.
He believes that Russian President Vladimir Putin lives in a bubble of distorted reality and doesn’t understand what’s really happening in Ukraine, Zelensky said. Until then, there can be no negotiated solution. Selenski believes that the war will only escalate. Western arms supplies to Ukraine are the best way to shorten the war.
A negotiated solution is a long way off
Nobody in Europe should pressure Ukraine to make concessions in order to end the war quickly, added Polish President Andrzej Duda, who had just returned from a trip to Kyiv. “No politician in Ukraine could push through concessions, he would be finished.” Too much blood was shed for that. “The whole nation has decided to fight.” Ukrainian entrepreneurs are also saying that a negotiated solution with Russia after the atrocities in Ukraine is not sustainable.
Workers from a clean-up crew in front of a building after an explosion in the Ukrainian capital.
(Photo: dpa)
Military experts also predict a prolonged trench warfare. Putin critic Bill Browder even thinks several years of war in Ukraine are possible.
It is already clear that the European Union will have to bear a large part of the costs. The EU Commission is currently setting up a reconstruction platform for Ukraine, which is to be led by the EU and the Ukrainian government. Multilateral institutions such as the International Monetary Fund, the World Bank, the European Investment Bank and the European Bank for Reconstruction are to be included in the platform, as are international financial institutions.
>>Read more: “For me, the fight against Putin is very personal” – Bill Browder calls for more toughness against the Kremlin
Economy Minister Svyrydenko said the Ukrainian government is currently defining areas and regions that should be built first. President Zelensky has a reconstruction model in mind, according to which individual countries, cities or companies take on a kind of development sponsorship for individual cities or sectors in Ukraine. This would speed up the process.
Private donations needed
Yuriy Gorodnichenko of the University of California at Berkeley calls for using confiscated Russian assets as another means of financing. Gorodnichenko also contributed to the report on the cost of reconstruction. The primary concern is the confiscated approximately $300 billion in foreign reserves held by the Russian central bank. The governments in the USA and Europe are currently discussing how the previously frozen assets can be confiscated and used for the reconstruction of Ukraine.
Ukraine-combat operations-16zu9–2022-05-25
In addition, Russian reparations payments could contribute to the financing, says Gorodnichenko. As an example, he cites the special tax that Iraq paid for its attack on Kuwait for 30 years. Also private donations will have to be part of the funding. “It is important that most of the total amount must be donations and only a fraction loans,” emphasizes economist Gorodnichenko.
Economy Minister Svyrydenko hopes that the EU’s duty-free regime will be extended. Free access to the EU and other G7 markets will be an important support factor for the country. It also relies on technology transfers from abroad, for example for the Ukrainian steel industry and for the processing of Ukrainian food.
More Handelsblatt articles on aid for Ukraine
But Ukraine experts and economists warn of obstacles to reconstruction even if the bombs stop falling. So does Joseph Stiglitz, winner of the Nobel Prize in Economics at Columbia University. As part of the reconstruction, factors such as legal certainty, competition law and the fight against corruption in Ukraine must be improved, he says. Otherwise there would be no urgently needed investments from abroad.
When a country like Ukraine is currently experiencing such a severe slump in its economy, it is extremely difficult to get the economy going again. Among other things, there will be a major problem with bad loans. “And the longer the war lasts, the more difficult this will become.”
More: G7 idea: Russian oligarchs can buy their way out of sanctions with their billions