How will the West use frozen Russian assets to support Ukraine?

On June 13, G7 leaders agreed on a plan to use about $300 billion in frozen assets of the Russian central bank to finance Ukraine's military capabilities.

The West has seized about $300 billion in assets from the Russian central bank by 2022. Photo: TASS

Instead of spending $300 billion on the principal, the new plan would use the interest on those assets — estimated at several billion dollars a year — as collateral for a one-time loan of up to $50 billion to Ukraine.

"Ukraine has a huge fiscal deficit, about 20-30% of GDP, which is very difficult to cover domestically. We don't have a developed financial market, the economy is not working well and many asset prices are falling," said Yury Gorodnichenko, a Ukrainian economics professor at the University of California.

Mr Gorodnichenko noted that the Ukrainian government , which needs $100-150 billion annually to run the country and fight the war, received almost no aid in the first two months of the year. That, he said, “creates a lot of uncertainty about how much money is available to finance weapons and domestic needs”.

G7 plan. Graphics: DW

While the additional $50 billion will be welcomed in Kiev, it also poses a challenge for the country's policymakers, as it is only a loan and will require interest payments.

Jacob Kirkegaard, a senior fellow at the Brussels office of the German Marshall Fund think tank, said the problem could also be the difficulty of disbursing the principal amount after the conflict, as it would be used over more than a decade to support the new loan.

However, the one-off loan has temporarily eased the West’s huge financial shortfall in aid to Ukraine, with the EU struggling to make up for the stagnant US aid over the past few months.

“The G7 leaders want to secure funding for at least another year. But ultimately, our European allies need to make a political decision on whether they want to touch this major Russian asset,” Gorodnichenko said.

Ukraine’s aid needs are likely to remain high for several years, including billions of dollars to rebuild damaged power infrastructure and rebuild cities after the conflict ends.

Meanwhile, Ukraine is running out of funding. Kiev is now preparing to raise income tax, excise duty, sales tax and other indirect taxes.

Ngoc Anh (according to DW)

Source: https://www.congluan.vn/phuong-tay-se-su-dung-tai-san-bi-phong-toa-cua-nga-de-vien-tro-ukraine-nhu-the-nao-post299293.html