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  • Igor Burakovsky about the post-war reconstruction of Ukraine

    25.04.2022
    Russian forces have retreated from Kyiv and its surrounds, pulling back in the face of fierce resistance from Ukrainians. But locals cannot relax yet: the war is far from over and Moscow has showered every corner of the country with missiles, so more bombs could yet hit the capital. 
     
    Professor Igor Burakovsky, Kyiv resident and director of the Institute for Economic Research and Policy Consulting, says May 9 is a date when locals fear more Russian action. 
     
    “They celebrate victory in the Second World War, and for them it would be a kind of opportunity to demonstrate something,” he says. 
     
    “I’m not sure if they will launch another attack against the city of Kyiv, but some bombardments or military actions could be launched. I know a lot of people who are a bit afraid of coming back. Russia does not want to leave my poor country.” 
     
    Despite the violence, he hopes to travel to Warsaw next month for a conference on rebuilding Ukraine. 
     
    It might seem premature to plan reconstruction when destruction is still being wrought on Mariupol and the East, but economists are preparing to spring into action to restore the nation at the first opportunity. 
     
    Valeria Gontareva, former governor of the National Bank of Ukraine, says she put in place plans for just this eventuality after the earlier war in Donbas and Russia’s annexation of Crimea. The plan fixed exchange rates, restricted capital outflows and injected support into the banking system from day one of this invasion. 
     
    Those previous conflicts were extremely damaging - she estimates Ukraine lost a fifth of its GDP - but this war is of a far more devastating scale. 
     
    The World Bank expects Ukraine to lose 45pc of its GDP this year.
     
    Gontareva lists the damage: a budget deficit amounting to 30pc of GDP this year, “export capacity destroyed completely; the main ports are occupied; it is catastrophic loss not only for today, it is for years ahead,” she told an event at the Peterson Institute for International
    Economics. 
     
    “The total economic loss of today is estimated at $564bn, including $270bn of infrastructure. Even when I prepared my presentation one week ago it was $150bn. 
     
    “It happens daily. It could be trillions. Nobody knows exactly when this war will be stopped.” 
     
    Analysts at the Centre for Economic Policy Research (CEPR) compared the situation to previous reconstruction efforts, from the Marshall Plan after the Second World War to the reunification of Germany in the 1990s to aid for Afghanistan and Iraq in the 2000s. 
     
    They tentatively estimate restoring Ukraine could take anywhere between €200bn and €500bn. 
     
    When it comes to cash, Gontareva suggests seizing frozen Russian assets, including $300bn of central bank funds. “We should use it for war reparations in Ukraine, but we need to start the legal process like Hague tribunals or a Nuremberg process now,” she says. 
     
    Another $200bn from the International Monetary Fund, starting with $100bn which was allocated to western nations to fight Covid but was not spent, would also help. 
     
    And finally she proposes the EU could send another $100bn. 
     
    “It looks like an absolutely huge incredible amount for the EU, but let’s recall even the small Czech Republic during the EU accession got $100bn in grants,” she says. 
     
    Even better, it may not have to stump up the funds itself: “The EU should not suffer themselves to provide all this financing, but cover all these financing needs by confiscation of frozen assets of Russian oligarchs.” 
     
    Then comes the question of how to spend it. 
     
    Not everything can be replaced: “We are talking about human losses - these cannot be recovered with a heap of money,” says Burakovsky. 
     
    But those forced to flee can be enabled to return by rebuilding homes. “10m Ukrainians are living outside their native places,” he says. 
     
    “Without working hands, without labour, it is really difficult. Money is ok, but there needs to be workers who can make the 
    reconstruction.”
     
    Similarly, basic infrastructure including roads and bridges - destroyed either in fighting or by one side to hamper the efforts of the other - need rebuilding. 
     
    The CEPR lists the distribution of food, fuel and medical supplies as a vital first step, which would be aided by the restoration of the transport network. 
     
    Given the importance of Ukraine’s vast farmlands, support for agriculture is also a priority, the analysts say. 
     
    After that, Burakovsky says the “reconstruction of productive assets” is needed to restore the modern economy, potentially with something better than that which was destroyed. 
     
    Replacing ageing industrial plants could help the economy rebound more strongly, bringing to mind the post-war recoveries of Germany and Japan, which ultimately become more advanced and richer than many of the war’s victors. 
     
    Long-term investment in defence will also be key. 
     
    “We need to spend as much as possible to ensure our security,” says Burakovsky, both directly on the military and when it comes to wider rebuilding plans. 
     
    “It will impact for example how buildings are to be constructed, to provide shelter for civilians in case of another round of war.” 
     
    At the same time he says Ukraine’s institutions need support, with law enforcement cleaned up and the fight against corruption 
    reinforced. 
     
    Torbjorn Becker at the CEPR says the Ukrainian government needs to be allowed to take the lead and democratically determine how funds are to be spent, with inbound aid coordinated with a single independent agency, rather than a flood of groups. 
     
    “It cannot really be the usual international financial institutions, where countries like Russia and China have a lot of say. It should be EU-related, preferably,” he says, noting Ukraine’s desire to join the bloc. 
     
    “If we think about European war history we have seen several examples of reconstruction that have been successful. But we have counterexamples of Afghanistan and Iraq where it has not been so easy. These countries did not have the institutional anchoring like the EU would provide to Ukraine.” 
     
    Burakovsky sees Ukraine eventually becoming “a dynamic economy … at the heart of the EU’s economic complex”. 
     
    Gontareva does not even think it should take that long, if the war can be ended, reforms pushed through and reconstruction commenced. 
     
    “You could do reforms in three years. When all reforms are done, you could do a real recovery of the Ukraine’s economy and even cities in five, up to 10, years,” she says.
      

     

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