US proposes debt to fund Ukraine using frozen Russian assets: FT
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The G7 group of nations has been divided on what to do with €260 billion in Russian assets frozen by the West since the war in Ukraine began in February 2022.
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Ukrainian President Volodymyr Zelensky delivers his speech at the Annual Meeting of the World Economic Forum in Davos, Switzerland, Tuesday, Jan. 16, 2024. (AP)
The US has suggested issuing tens of billions of euros in debt to Ukraine, backed by potential revenues earned by Russian state assets that have been blocked by Western countries, the Financial Times reported.
Approximately $300 billion in Russian securities and cash have been frozen by the EU, G7, and Australia, with the majority held in the EU. While there was a belief that these funds should remain inaccessible to Russia unless it assists in Ukraine's reconstruction, there was disagreement over the legality of outright asset seizure.
Washington has supported the notion of seizing the reserves and transferring them over to Ukraine, which European officials believe would violate international law and disrupt financial markets. EU nations would want to simply give Kiev the income from the underlying assets.
The plan will be addressed by G7 finance ministers on the margins of the World Bank and IMF spring meetings in Washington next week, with Daleep Singh, the US deputy national security adviser for international economics, stating that the objective is to reach a decision at the G7 leaders' annual conference in June.
Meanwhile, as per an EU plan, yet to be adopted by the bloc’s 27 member states, most of the future profits would be used to buy weapons for authorities in Kiev, while some would go toward Ukraine's reconstruction.
Adding the US idea to this, a feasible compromise would be to utilize some of the earnings for weapons procurement and reconstruction and some to repay debt.
An EU diplomat warned that discussions are ongoing, citing that "imagine you have €1bn of usable proceeds of these revenues. You can allocate €300mn to reconstruction, €300mn to self-defense of Ukraine, and €300mn to back up the emission of loans . . . You can make small pockets of these amounts and distribute it to different needs."
One significant advantage of the US proposal, according to the Financial Times, is that it would raise more revenue upfront for Ukraine.
According to a European official, a bond might yield between €30 billion and €40 billion based on expected earnings from Russian money in Euroclear over the next ten years, and €50 billion to €60 billion in profits over the next 15-20 years. They warned, however, that this was significantly reliant on future interest rates.
“These simulations are more or less reliable for one year and then you have to see. You really have to be careful,” the official stressed.
Interest from Russian assets to be spent on Ukraine arms: Scholz
German Chancellor Olaf Scholz in March announced that interest accrued from frozen Russian assets will be used to purchase arms for Kiev.
Western countries hold about $300 billion of funds belonging to the Russian Central Bank. Of the sum seized by Euroclear, which roughly accounts for €191 billion ($205 billion), the funds have accrued over €4.4 billion in interest over the past year.
"We will use windfall profits from Russian assets frozen in Europe to financially support the purchase of weapons for Ukraine," Scholz said at a joint press conference with counterparts French President Emmanuel Macron and Polish Prime Minister Donald Tusk in Berlin.
He further unveiled plans to establish a "new capability coalition for long-range rocket artillery," with procurement intended to occur "on the overall world market."
Scholz refrained from offering more details, leaving uncertainty regarding whether he was alluding to a completely new initiative or to a "long-range" plan previously announced by President Macron in February.
