LONDON- Ukraine needs cash to keep defending itself against Russian aggression. The United States and European Union are struggling to keep writing cheques to the country. They’re also reluctant to hand over $300 billion of Russian central bank reserves, which Western governments froze at the start of the war.
Here is a proposal for a fallback plan. Kyiv could raise money by selling bonds backed by future claims for war damages against Moscow.
It would be better if Ukraine’s backers just gave it more cash, as the United Kingdom did last week. But elsewhere fatigue is setting in. US President Joe Biden has so far failed to persuade Congress to approve a new $61 billion package for Kyiv. Meanwhile, Hungary blocked the EU’s planned 50 billion euros in aid last month, although other member states are determined to find a way round the problem.
Efforts to seize Russia’s frozen assets are also making slow progress. Not only are lawyers arguing whether confiscation would be legal. Politicians wonder whether it would be wise, though they are actively exploring doing so, according to the Financial Times.
Issuing “reparation bonds” would circumvent these problems. Ukraine would sell securities which pay out if – and only if – it receives reparations from Russia for the damage done by the war. Interest payments could also roll up and only become payable if Kyiv gets compensation.
The bondholders would not have a contractual claim on the Kremlin’s frozen reserves. But given that Russia is unlikely to pay up willingly, these assets would be the most likely source of cash to pay for damages.
Since the reserves are accruing interest, they could be used to pay both the bonds’ principal and coupons. This would be different from confiscation, because the assets would only be transferred if a legitimate compensation mechanism first ruled that damages were due to Ukraine.
Ukraine would have a plausible way to collect on any damages awarded up to the value of the reserves. It could therefore issue reparation bonds up to $300 billion. But it would only get anything like this sum if the United States, EU governments and other allies were willing to buy the securities.
