The US Senate passed the $95 billion Ukraine-Israel-Taiwan Aid Act on the 23rd, and Ukraine is expected to receive a “bailout” of $61 billion in US aid. In the photo is a soldier from the Ukrainian army. The photo was taken on March 4, 2024 in Donetsk region, Ukraine (Reuters / Oleksandr Ratushniak)
ATHENS (Reuters Breakingviews) – The U.S. Senate passed a $95 billion Ukraine-Israel-Taiwan aid bill on Wednesday, putting Ukraine on track to receive a “lifeline” of $61 billion in aid from the United States Ta. However, if Ukraine is to survive the Russian attack, a medium-term financial plan is essential, and there is no doubt that the core of this plan is the use of frozen Russian central bank assets to compensate for war damage.
Most of the US aid to Ukraine included in the bill includes providing weapons and training to troops, and when combined with support from other countries, Ukraine could survive the war until the end of next year. This is certainly an improvement compared to the situation a week ago, when military supplies were at a critical level.
However, Ukraine may run out of weapons again in the second half of 2025. Even if Mr. Biden is re-elected in the US presidential election in November, it is likely that he will have a hard time getting an agreement from Congress for additional aid to Ukraine, and things will become even more uncertain if Mr. will who has not declared any support for Ukraine, returns to the post on the right.
In contrast, there are several advantages to developing a multi-year financing plan for Ukraine. First, it provides insurance against political “wobble” in the United States. It would also boost Ukrainian morale and give confidence to the Western military industry that it is safe to increase production.
It is possible that Russian President Vladimir Putin will change his mind if he believes that Ukraine can hold out for many more years. Ukrainian President Volodymyr Zelenskiy probably won’t be able to recover much territory. This is because they have no choice but to attack the thick Russian defenses while it is difficult to recruit additional troops. However, Mr Zelenskiy may be able to gain the upper hand in peace talks and freeze the conflict, as North and South Korea agreed to a truce 71 years ago.
Russia’s economy was worth $2 trillion last year, 11 times larger than Ukraine’s, and Ukraine is doing its best to maintain the lead. According to the Stockholm International Peace Research Institute, Ukraine’s defense spending in 2023 totaled $65 billion, a staggering 37% of its gross domestic product (GDP).
Western aid filled the gap; the Kiel Institute for the World Economy estimates that last year’s aid to Ukraine from the United States and Europe totaled 88 billion euros, including pledges. Of this amount, 47 billion euros is military aid and the rest is financial and human aid.
Reuters graphic
How much money Ukraine will need in the future will depend on how the war progresses. If we focused on defense, it would be less of a burden than trying to expel Russia from our vast territory. But with Russia increasing its military spending, Ukraine will need at least as much aid each year from its allies as the 88 billion euros it received in 2023.
According to an analysis by the Kiel Institute for the World Economy, at the end of February, Ukraine’s allies (mainly the European Union) had promised 103 billion euros of aid but it had not yet been implemented. Add to this the $61 billion (57 billion euros) in aid approved by the US Congress, and Ukraine will probably have enough aid until the end of 2025.
Reuters graphic
A key element in providing large amounts of financial aid to Ukraine is the use of Russian assets (worth approximately $320 billion) that Western countries froze at the start of the war. Ideas include confiscating the assets, using the money to finance Western loans to Ukraine, or giving Ukraine interest on frozen assets.
Most of the frozen assets are at the Belgian international securities clearing house, Euroclear, and are accruing interest. The United States is proceeding with a plan to turn this interest into capital and use it to support Ukraine.
Most likely, a special purpose vehicle (SPV) would issue bonds backed by future interest rates and deliver the proceeds to Ukraine. The United States hopes to persuade its partners to support the plan at the Group of Seven (G7) summit in June. If countries guaranteed interest payments on frozen assets for 10 years, they could secure 30-40 billion euros.
Such aid would help Ukraine, but it would provide less than half a year’s worth of money and would not significantly change the situation. However, it would be a different story if he provided Ukraine with $320 billion in frozen assets, which would likely cover the costs of war at least until the end of 2028. If the conflict ends or a ceasefire is reached by then, Ukraine could use some of this money to rebuild its economy. The World Bank estimates the cost of post-war reconstruction in Ukraine to be $486 billion.
Biden currently has the power to seize Russian money, but there are only about $5 billion in Russian assets in the United States. EU countries, where most of the frozen assets are, have legal problems with confiscating frozen assets.
Therefore, syndicated compensation loans are a more realistic alternative. The plan was drawn up by Lee Buheit, a veteran sovereign debt lawyer, and Daleep Singh, who went on to become the US deputy adviser for global economic security in February.
The scheme simply means that Ukraine transfers compensation claims against Russia to a syndicate of allies in exchange for a loan. If Russia refuses to pay reparations, Ukraine’s allies can repay the loan with frozen Russian assets. This is a more legally sound approach than confiscation of assets.
The G7 should make it clear that the capitalization of interest on Russia’s frozen assets does not presuppose subsequent financial assistance on a larger scale. Furthermore, by speeding up the establishment of an international compensation commission with the authority to award compensation, it will be possible to speed up the process of paying compensation money.
Western countries may relax now that the US Congress has finally agreed to provide $61 billion in aid, but this is a mistake. Ukraine’s allies must take advantage of the US Congress’ passage of an aid bill for Ukraine and work towards providing a more ambitious “rescue number”.
(The author is a columnist for Reuters Breakingviews. This column is written based on the author’s personal opinion.)
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