I have previously argued that the time to plan for postwar reconstruction is while the war is still raging. That was successfully done in the second world war, and it needs to be done in Ukraine today.
It was good news, then, that the Ukrainian government presented a detailed reconstruction plan at a conference in Lugano earlier this week. And it is doubly good news that the plan seems to do all that can be demanded in so little time from a government under existential threat from Russian president Vladimir Putin’s violence.
I admit to not having read all the thousands of pages in the individual documents, which are here for your delectation. But to get started, look at the overarching policy document that sets out the content, conceptual framework, and costs that the plan envisages. You can also watch the whole event on video.
One conclusion from doing so is clear: the Ukrainian government has undeniably done its homework.
The recovery plan is comprehensive, coherent and focuses on the right goals — in particular, the need to see the reconstruction as a tool for advancing Ukraine’s compatibility with EU membership. An important part of that is to aim to “build back better” — ie create infrastructure, economic structures and governance standards that will be state of the art for advanced European countries not today but in 2050. In this, the plan hews closely to the blueprint proposed by leading economists three months ago. It is right to do so.
It is also appropriately ambitious. The plan estimates a need for about $750bn in investments over a decade, and aims for a 7 per cent annual growth rate. As I have written before, this is in the right ballpark for reconstruction needs. One should not do reconstruction on the cheap; this is the sort of money needed for the investment that would make Ukraine a good fit for full EU integration. The $750bn would very roughly double the country’s prewar capital stock after replacing what has been destroyed in the war. (The capital stock was 270 per cent of gross domestic product — of which about 210 per cent was private capital and 60 per cent government-owned capital, according to the IMF — and GDP about $200bn.) If we assume that a doubling of the capital stock can roughly double annual GDP over a decade — though it could achieve more or less depending on how well it is invested — then that amounts to a 7 per cent annual growth rate.
The challenge, of course, is to turn a good plan on paper into concrete achievements on the ground. But we should not dismiss how important it is even to get a good plan down on paper. While far from sufficient, it is a necessary step, without which Ukraine’s state capacity would be legitimately doubted.
The Lugano presentations, in this sense, are the latest in a series of signs that the Ukrainian state and government have been upping their game significantly. For example, those close to Ukraine’s process of applying for EU membership marvel at the record speed the government got through the detailed submission formalities. Others have commended Ukrainian prosecutors’ impressive ability to collect evidence and conduct trials of Russian war crimes with full due process. All at a time of full-on war.
But a successful conference only takes you so far. Here are three big questions about what comes next — and some speculative answers.
Will the money come? The good news is that Ukraine’s friends are endorsing its plan. Beyond the formal declaration, there does seem to be a widespread political understanding of the need to rebuild Ukraine in a way that integrates it with the EU, and — for now — a willingness to fund this effort. The question of whether frozen Russian assets should be seized to pay for reconstruction is important to the Ukrainians but a bit of a sideshow. What is essential is for partner countries and institutions — the EU above all — to fully commit to securing the funding. Then it will be a question largely for them if they will push all legal mechanisms for making the Russian state and its proxies pay for the destruction it has caused, or let their taxpayers shoulder the burden. The political imperative is that the west must see Ukraine’s EU-oriented reconstruction as squarely in its own self-interest, not just an act of charity.
How will the reconstruction effort be organised? The bigger challenge than finding the money — not to minimise that challenge but, as I said, the mood is at present good — will be how to organise the bankrolling effort. People I speak to see good reasons to fear a disorganised melee of countries and international institutions all caring about their brand, their influence, and visibility of their money. The risk is one of paralysis if no streamlined, centralised process to co-ordinate both donors and spending is agreed. The Ukrainian government has increased this risk with a scheme to match individual donors with specific regions or cities in Ukraine — Denmark, for example, is supposedly taking responsibility for Mykolayiv — that nobody quite seems to understand how it is supposed to work.
No one would be served by such an organisational mess. Logic dictates that the money should flow through two entities: the Ukrainian government, which alone can identify the country’s needs, and an agency of donors that can reassure them their money is being well spent. And the only good place for that agency is as part of the EU, because reconstruction has to be combined with Ukraine’s candidacy process, and whose members will inevitably put up the bulk of the funding.
Will donors trust Ukraine? The great obstacle to donor confidence is, of course, the country’s record of corruption. While nobody wants to speak too loudly about it lest they provide fodder for Russian propaganda, that record warrants scepticism among potential donors — but perhaps less than what is the case. The nuances are well set out in a recent Chatham House paper.
Two very positive developments since 2014 are not sufficiently appreciated outside Ukraine. One is that the state has made significant progress on anti-corruption and transparency. Important steps have been taken to clean up the banking system, for example. And public procurement is now fully transparent, following principles of open contracting on a digital platform that as far as I can tell would be state of the art for any country — indeed, many EU countries could do well to take a look at Ukraine’s ProZorro platform. Something similar looks likely to be used to manage reconstruction.
The second is the constructive role played by Ukraine’s vibrant civil society. ProZorro itself was built with non-governmental help. A network of activist monitoring of contracts, DoZorro, grew up around it. At Lugano, a new coalition of organisations was launched to provide similar civil society scrutiny to reconstruction. The work of these organisations is strengthened by outside pressure for reform, which is why it is so important that reconstruction is embedded in the EU accession process.
Progress notwithstanding, there is still much more to do. Transparency is not self-reinforcing, and it is essential that the Ukrainian state improves enforcement of clean governing, taxation and spending standards. Here it is clear enough what needs to be done; indeed, the government itself included a detailed legislative and enforcement road map in its reconstruction plan. And the EU’s granting of candidate status to Ukraine last month was made on the explicit understanding of specific further progress such as fully staffing new anti-corruption entities.
The stumbling stone, it seems to me, is a political willingness to limit one’s own power. Transparency and anti-corruption depend on a true separation of powers where everyone is genuinely accountable to someone independent of them. That goes against many instincts even in the most well-governed countries, and is understandably challenging in a nation that is at war, determined to sweep away old state capture, and where the president enjoys a huge parliamentary majority. Even so, it is what Ukraine — and its friends — need most of all after military victory. Ukraine’s President Volodymyr Zelenskyy has performed extraordinarily as a wartime leader — a greater act of leadership still would be to build truly independent checks and balances on everyone’s power, including himself.
Other readables
Central banks are too worried about inflation and not worried enough about the damage their tightening will do to their economies, I argue in my latest FT column. In the few days since that was published, fears of how bad that damage could get have sent commodity prices plummeting, as our sister newsletter Unhedged analyses.
France’s finance minister calls the EU’s fiscal rules “obsolete”, in an interview with the FT.
The Peterson Institute’s Adam Posen and Lucas Rengifo-Keller put Brexit in the context of the broader international pressures towards deglobalisation.
The European parliament passed the EU’s controversial green investment taxonomy, which includes gas and nuclear projects under strict conditions as pathways to a decarbonised economy.
Numbers news
More bad luck: now a strike at Norwegian gas giant Equinor has sent European gas prices soaring again.
Germany has recorded its first trade deficit in more than 30 years.
Source: Economy - ft.com
