Allies pledge billions for Ukraine’s recovery as Zelensky emphasizes urgency

Western countries pledged tens of billions of dollars on Wednesday to rebuild war-torn Ukraine.

But with the projected total cost of reconstruction in the hundreds of billions of dollars, the prospect of using confiscated Russian assets to pay for them emerged as a powerful, if problematic, theme at the meeting.

Britain and the European Union are both exploring legal mechanisms to divert frozen Russian assets to Ukraine. Globally, these public and private assets are estimated to be at least $300 billion, a significant portion of the total reconstruction cost, which the World Bank currently estimates at more than $411 billion.

While few legal experts question countries’ right to freeze foreign assets, some warn that seizing a large amount of Russian funds could set a tricky legal precedent and undermine confidence in financial markets.

The pledges, rolled out by Britain, the United States and the European Union, sought to shift public attention, at least for now, from the battlefield to the years of rebuilding Ukraine that will follow the war.

“It is clear that Russia must pay for the destruction it has caused,” Prime Minister Rishi Sunak of Britain said at the opening of the conference.

“As we have seen in Bakhmut and Mariupol, Russia will try to destroy what Russia cannot handle,” Sunak added. “They want to do the same with Ukraine’s economy.”

President Volodymyr Zelensky of Ukraine spoke to the participants via video link and argued that economic opportunities lay in the ruins of his country. He thanked the donors but begged them to start investing immediately.

“We need to move from vision to agreements, and from agreements to real projects,” said Mr. Zelensky.

Britain announced aid that includes £240 million ($305 million) in direct economic aid and $3 billion in loan guarantees from the World Bank. The loans are intended to encourage an influx of private investment to rebuild Ukrainian towns and villages destroyed by Russian forces.

The European Union has drawn up an ambitious package that would include €50 billion (about $55 billion) from 2024 to 2027. About €17 billion would come in grants and the rest in the form of low-interest loans. However, the package must be approved by all 27 members of the bloc and it may run into hurdles.

“This plan could become an anchor for all international donors,” said Ursula von der Leyen, the President of the European Commission. “This is what I mean when I say we are with Ukraine as long as it takes.”

The United States announced $1.3 billion in additional economic aid, roughly divided between funds to overhaul Ukraine’s badly damaged energy infrastructure and to modernize ports, railways and border crossings.

“As Russia continues to destroy, we are here to help Ukraine rebuild,” Secretary of State Antony J. Blinken said, noting that the package received bipartisan support in Congress. “Recovery is about laying the foundations for Ukraine to thrive.”

The United States has provided Ukraine with more than $20 billion in economic aid, Mr Blinken said, as well as $2.1 billion in humanitarian aid. It is also the largest supplier of military aid to the Ukrainian army.

Britain, which is also one of Ukraine’s largest military suppliers, is taking advantage of London’s status as a global financial and insurance center to boost foreign investment, in part by trying to reduce risk for investors.

The $3 billion in loan guarantees to the World Bank extends over three years, Mr Sunak said, and is backed by more than 400 companies from 38 countries, including Virgin, Sanofi, Phillips and Hyundai Engineering.

The World Bank’s estimate of reconstruction costs does not cover the extensive damage caused this month by the destruction of the Kakhovka dam in southern Ukraine. The price tag is so huge — and rising so fast — that it calls once again for Russian assets to be seized to pay for it.

“The question of Russian assets is the elephant in the room at the conference,” said Philip D. Zelikow, a historian at the University of Virginia and Stanford University who has written about Ukraine’s long-term recovery. “If we don’t use Russian resources, we simply don’t have enough money to do it.”

Mr. Zelikow said that reconstruction without Russian resources would require massive state spending, which would be politically unsustainable in several countries, not least the United States. But for now, he said, the intense focus on private investment postpones more difficult questions about the role of Russian money.

According to Prime Minister Denys Shmyhal, Ukraine’s government is already using confiscated Russian assets in its country to pay for reconstruction. Appearing at the conference on Wednesday, he encouraged Western countries to develop legal mechanisms to confiscate frozen assets in their countries for similar purposes.

“Russia must pay for what it destroyed,” Mr Shmyhal said.

But the issue remains sensitive. The European Central Bank has privately warned Brussels that seizing Russian funds or giving the interest earned on those accounts to Ukraine could undermine confidence in the euro and affect financial stability.

Some say that if the United States did it, countries that hold large dollar-denominated foreign exchange reserves would be unnerved. Treasury Secretary Janet L. Yellen warned last February of “significant legal obstacles” to it.

Britain this week announced legislation that would allow it to leave sanctions in place until Russia pays reparations to its neighbour. Britain has frozen about $23 billion in assets and imposed sanctions on 1,550 individuals.

“It is absolutely right that we explore all legal avenues, nationally and internationally, to deliver a message,” said James Cleverly, the British Foreign Secretary. “I am confident that we will release the funds needed for Ukraine’s recovery.”

But Mr. Cleverly, like other Western officials, dodged questions about how and when that could be achieved.

Mr. Zelikow argued that there was sufficient precedent. In a recent essay in Foreign Affairs co-authoring with Lawrence H. Summers and Robert B. Zoellick, Mr. Zelikow noted that after Iraq invaded Kuwait in 1990, France, Britain and the United States transferred frozen Iraqi state funds to an international escrow account to pay compensation .

While fighting is still raging in Ukraine, analysts said it was important to start planning the post-war reconstruction process to avoid delays that prevented Europe from rebuilding after World War II.

“Without any planning, these delays can add up, and they can lead to human misery and to the failure of economies and essentially foreign policy failures,” Howard Shatz, a senior economist at RAND Corporation, told reporters last week. . “So it’s important to start planning now.”

Patricia Cohen contributed reporting from London, and Victoria Kim from Seoul.