Ukraine To Unveil Massive Rebuilding Plan Even As War Bogs Down

(Bloomberg) -- Ukraine plans to put forward a blueprint this week for rebuilding the country that could mobilize hundreds of billions of euros, even as the nation grapples with a Russian invasion that's destroyed cities, shredded the economy and displaced millions. 

The plan, around 2,000 pages, will be introduced at a July 4-5 conference in the Swiss city of Lugano, according to people familiar with the outline. It will map out a broad list of infrastructure and security projects, investments in climate and the digital economy as well as diversification of energy resources. 

European Union officials have said the 27-member bloc, which last month formally admitted Ukraine as a candidate, will contribute the bulk of overall financial assistance, a volume that could surpass 500 billion euros ($523 billion). The Ukrainian government thrashed out the draft with donors, including the EU, who will provide feedback over the coming months, the people said on condition of anonymity because the discussions were not public. 

The European Commission, the bloc's executive arm, is exploring financing options that include grants and loans, though details are scarce and officials are reticent to put forward estimates while the war is raging. One possibility is joint borrowing on the markets similar to the vehicle for raising funds for the EU's pandemic recovery fund. 

No End in Sight

Any postwar plan has a long horizon as Ukrainian and Russian forces have been bogged down in fighting in the eastern Donbas region, which has become the top priority for military planners under President Vladimir Putin. Even as the Kremlin made gains in the past few weeks, Ukrainian President Volodymyr Zelenskiy has repeatedly vowed that he'll never accept ceding territory. 

At a press conference in Kyiv on Friday, Zelenskiy referred to the Lugano plan as a “first draft,” since the scale of the effort will be “difficult.” 

The sums involved in any rebuilding also highlight Ukraine's acute financial pain, as policy makers in Kyiv struggle to keep the budget running as revenue dries up and reliance on global donors increases. Ukrainian officials are exploring the possibility of debt restructuring as the country's financing options reach their limit. 

A plan of such scale will also come under scrutiny of EU governments skeptical about adding debt. Emergency assistance for Kyiv has already been held up in EU institutions by disagreements between EU officials and Germany over details of the package. 

Commission President Ursula von der Leyen will attend the Lugano conference to present an EU-based platform for global donors, including Group of Seven partners, multilateral organizations, Switzerland and Norway, according to the people. The EU will aim to coordinate the global effort, with open channels for varying financial instruments used by the US and the World Bank. 

Von der Leyen's team is working on a concept paper as the basis for discussions in the bloc before any proposal is finalized, the people said. After the summer, the Commission and Germany as the G-7 chair will convene a conference to move the plan forward. The Czech government, which holds the EU's six-month rotating presidency, plans to organize a donor conference in November. 

Strings Attached

For the EU, any aid must also be linked to reforms. Ukraine's EU candidacy status came with a road map to fight corruption, break control of oligarchs over the economy and make rules to select judges. Ukraine ranks 122nd out of 180 countries on Transparency International's Corruption Perceptions Index. 

Von der Leyen told the Ukrainian parliament on Friday that the country needs to select “the right people” for its anti-corruption bodies as soon as possible, implement anti-oligarch legislation and move forward a new media law. 

“No one expects Ukraine to fill in all posts in your new institutions while so many of your best and brightest are fighting on the front,” von der Leyen told the Ukrainian lawmakers. “But Ukraine's democracy must be kept on the right track.”

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