OPINION: Ukraine Reconstruction - Some Concerns

Things that worry me about Ukraine reconstruction/recovery efforts:

As we approach the much heralded/expectant Ukraine Recovery Conference due to be held in London later this month, I cannot help but feel a little perplexed, or even disturbed by a number of developments – is it just me? But…

First, I am just amazed at how quickly an industry in conferences and seminars has grown up around the whole topic of Ukrainian reconstruction. It’s great that there is interest in getting involved and thinking through the issues, but the sheer number of think tanks, consultants, etc. who are now selling themselves as Ukraine or reconstruction, or both, experts, but who seem to have little historical experience is a worry.

It feels a bit like a gravy train – and reminds me a bit of the whole EU TACIS/PHARE [Technical Assistance to the Commonwealth of Independent States / Poland and Hungary Assistance for the Restructuring of the Economy] gigs from the 1990s and the approach to Emerging European (EE), former Soviet Union reconstruction after the fall of Communism.

We can debate the effectiveness of the TACIS and PHARE programs but my takeout, as someone who was there and involved firsthand, was that a lot of Western consulting companies and consultants got the lion’s share of monies which should have gone to actually help the transition and development in these countries.

Other Topics of Interest

Ukraine Spent Nearly $2.5 Billion for ‘eRecovery’ Program, But It’s Not Yet Enough

While the amount might seem colossal at first glance, it is far from enough compared to the $486 billion needed to fully restore what’s been ravaged by Russia’s invasion.

And lots of waste on bureaucracy. I hope that this does not happen in the Ukrainian case.

Lots of talk – but where’s the action?

We had the Lugano recovery conference, and now the London Recovery Conference. Let’s hope that decisions are made here and that this is not just another talking shop for lots of warm words by politicians, and bureaucrats, but not much substantive action.

Second, there seems to be lots of duplication of effort, and little coordination, at least from the G7 side. On the military side, we have the Ramstein process, and I think there is a need for something similar now from the Western side when it comes to helping to better coordinate and focus efforts on the economic side of support for Ukraine.

I know we have a new IMF $15.6 billion EFF [Extended Fund Facility], but this is about macro stability not about post-war reconstruction.

Third, and linked a bit to the second, I still don’t think we have a decision around the institutional setting for reconstruction. I have long argued the need for a single entity to manage the reconstruction effort, jointly managed/owned by the Western and Ukrainian sides. I have argued the need for a sovereign wealth style structure, an Agency for Ukrainian Reconstruction and Accession (ultimately to the EU), AURA

There has been talk of an MDB [multilateral development bank], like the EBRD [European Bank for Reconstruction and Development] or World Bank acting in this role as a coordinator, but I don’t think that is appropriate and have argued that elsewhere – they have the wrong shareholder base and too broad a mission, beyond Ukraine. Maybe the EU is the right entity, but then I think it needs a special office/commissioner to manage that effort.

But I think we need to quickly move on this, as any such entity will be a key partner for a private business thinking of investing in Ukraine.

And I do think that we need a heavyweight business/political leader to lead this effort – someone with international gravitas, credibility and standing who can lead this process.

I remember the stellar job done by Paddy Ashdown in Bosnia and Herzegovina as the special representative soon after the war. Perhaps it could be an internationally recognized business leader – what’s Richard Branson doing these days? Maybe Jamie Dimon needs a break.

Or maybe a Carl Bildt, or I hate to say it Mark Carney (I was never a fan of his stint as BOE governor, but he has the stardust factor for sure, and understanding of the IFI landscape, that can perhaps help to continue to focus light on Ukraine’s reconstruction needs).

I might have said Tony Blair but can never personally forgive him for the Iraq war debacle.

And please, please not Boris Johnson. I know the Ukrainians love him, but I fear that his solution to all problems seems to involve a microwave and I think this mission needs a little more substance in terms of leadership, and credibility. Ukraine does not need a circus. Lipton?

Fourth, I still don’t think Western governments have clearly thought through the huge financing needs of Ukrainian reconstruction, and who is going to pay for them. It’s clear that there is no appetite for Western taxpayers to pay, and then government types tend to focus on the private sector, I fear without really understanding the private sector.

The reality is that given the security risks, the track of Ukraine in terms of corruption and rule of law, likely lack of early international market access for Ukraine (high debt burden), and low credit ratings, the private sector will be slow to rise to the challenge here.

So, I think alternative sources of financing need to be found – frozen Russian assets, and innovative financing schemes to bring in the private sector. Recapitalizing MDBs by $5 billion extra a year for Ukraine reconstruction does not really touch the sides.

I would say that if the plan is to just rely on the private sector for Ukraine reconstruction, then it just won’t happen quickly enough. And actually, it won’t happen.

Maybe the EU accession anchor this time around will be different – it did ultimately work for the first round EE entrants in 2004 after a date was given for accession (as 2004) in the Copenhagen Treaty of 1994 – ironically the same year as the Budapest Memorandum.

Copenhagen Treaty = Good; Budapest Memorandum = Bad.

I thought someone needed to say the above, so I did.

Reprinted from @tashecon blog. See the original here.

The views expressed are the author’s and not necessarily of Kyiv Post.