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Narrator
This audio presentation is from the RAND Corporation, a nonprofit institution that helps improve policy and decisionmaking through research and analysis.
Jeffrey Hiday
Welcome to this Call with the Experts. I’m Jeff Hiday, director of media relations at RAND. We are discussing postwar reconstruction in Ukraine, which may well be the largest rebuilding effort in modern history. We have a new report out on the topic today, and I’m joined by the authors, Howard Shatz, a senior economist at RAND, Ambassador Charlie Ries, an adjunct senior fellow, and Gabby Tarini, an associate policy researcher. Ambassador Jim Dobbins also worked on the report. We’re recording this call and we’ll post it as a podcast on rand.org. I will lead a quick discussion to get us started and then if we have others join us on the call, they can pose questions, as well. Howard, I’ll start with you. War is still raging, so why focus on reconstruction now?
Howard Shatz
Yeah. So the war is still raging, but what we’re looking at is, is possibly the largest postwar reconstruction effort of the modern era. And that’s going to take a significant amount of planning. The big question is, why would we — why would we be concerned about this? Why would we want to plan for it in the first place? And it’s because the the postwar reconstruction of Ukraine is best seen as a continuation of the 75-year rebuilding and reintegration of Europe; something that the United States has led and been an important part of starting from the West — the reconstruction of Western Europe after World War II, the reconstruction and integration of Eastern and Central Europe after the end of the Cold War, and then the Western Balkans after the violent breakup of Yugoslavia. So, this is yet another step in that very important policy direction that the United States started after World War II.
Jeffrey Hiday
Is it — is it routine to be commencing with reconstruction in the middle of the conflict?
Howard Shatz
So, we look at past reconstruction events and it often takes time for reconstruction to get started. Reconstruction actually got started only about three years or so after the end of World War II. And during those three years, 1945 to 1948, you know, there was there were there were people who were not earning good livelihoods in Western Europe. There was a problem of encroachment of communism with the Soviet Union. So, you know, without any kind of planning, these delays can mount and they can lead to human misery and to failed economies and to basically foreign policy failures. So, so it is important to start planning now and we have experience with this.
Charles Ries
If I can add to that, Jeff, in in those years in in in Europe, ’45, ’46, part of ’47, the international community’s entire focus was relief, not reconstruction. And the problem, of course, is you can provide temporary housing and and food assistance, but unless you help the the victims, those who have suffered through the conflict, rebuild their economies, their their factories, their farms, the you’ll be in the relief phase forever. And so, it’s really important to be prepared ahead of time so that when the fighting stops and the circumstances allow, you can move immediately to that reconstruction phase. Even there, the reconstruction phase will take a long time because there are there are things you have to do first, second, and third to rebuild the infrastructure, the power grid, the water grid, those kinds of things.
Jeffrey Hiday
What kind of money are we talking about? There was a report from World Bank, U.N., and Ukrainian officials in March. It was over $400 billion. Does that sound about right or is that just a starting point?
Charles Ries
I think that it it clearly is in the ballpark. That is to say it will be a lot. It will be a lot more than a postwar reconstruction in certainly in current dollars and maybe in real dollars that we’ve ever seen. It’s a the country is a large country. The devastation of housing and factories and farms and so forth has been really very extensive. But we really won’t know for sure how much it will cost until it’s over and we can look back and find what the spending was, what the private investment was attributable to recovery from damage to the war.
Howard Shatz
And Jeff, if I would add to that, you know, the the Ukrainians themselves have come up with a reconstruction plan that they value at about $750 billion over over ten years. And that $750 billion, it could come to pass, but it also depends on the quality of the construction, on a number of factors. What is important to keep in mind is that when we talk about these very large sums, we’re not necessarily talking about all of it coming from international aid. They really — there will be and there needs to be a large component of private sector investment. And so that’s, that goes back to what Charlie said is we don’t we won’t know the final amount that will be spent for reconstruction because we don’t know how much investment there will be, nor do we know the business conditions in Ukraine that will that will lay the grounds for that investment.
Jeffrey Hiday
Andrea, did you want to go ahead and jump in?
Andrea
I’m wondering, on the question of the reconstruction cost, you know, that World Bank estimate was, of course, done in cooperation with the Ukrainian government and the European Union authorities. And my understanding had been that that $750 that you mentioned just before was, you know, like an initial kind of ballpark figure. Big kind of big reach. Right? And the work that was done to get to the $411 billion was much more detailed and meticulous. The World Bank last week when the dam was destroyed, said they were going to do a rapid needs assessment of that specific incident. But does the shift in what the Russian you know, what’s being attacked, that kind of civilian infrastructure give you clues as to where the trajectory is going? I mean, do you fear that the it’s going to be kind of a steep climb from the 411? Can [you] just kind of put some color around that and maybe if you have an assessment already or what — just, just the damage to the dam?
Howard Shatz
Right. So the World Bank the World Bank amount usually has several components if I remember correctly. One is the actual replacement cost of the damage. And then part of it also is kind of the total economic cost, and that is pretty exact. And we’ve seen that estimate rise as time has gone on. The dam break just means that the estimate is going to continue to rise. We don’t know how much that dam break will cost. In terms of physical destruction, it’ll be one amount. In terms of economic destruction, you know, you know, negative, negative hit to the economy if if that inundation ruins a planting season for a year or if it does something to the soil that makes it more difficult to plant, then we’re talking about much larger amounts. And that’s that’s another another issue is as the war goes on, the amounts will will probably increase.
Andrea
Can I just follow up on that question then? In terms of like one thing that’s happening is that, you know, one is trying to sort of keep an eye beyond the war — an eye on what happens beyond the war, so the whole reconstruction recovery piece, but the war is still going on. And, you know, to what extent will a robust military industrial complex play a role in the reconstruction of Ukraine?
Charles Ries
If I understand the question right, I mean, clearly, to the extent that the Ukrainian military industrial complex can be recovered, some of the and and will start spending or will start acquiring orders for replacement of of things that are damaged during the war, just like other kinds of assets that will contribute to recovery and that it will put people back to work. It will spin off other benefits. There will be consumption of of energy and steel and and payment of labor and so forth. And that generates follow-on effects. So clearly, any any amount of the the the inputs to recovery, the inputs to reconstruction of the Ukrainian economy that are produced domestically have higher multiplier effects and and can help the Ukrainian economy recover. Now, Ukrainian economy will be very damaged and it will not be something that all of the recovery needs can be met from domestic manufacture. But to the extent that there is domestic manufacture, that’s a good thing.
Andrea
And, you know, one of the key components to sort of rebuilding any industry, you know, and bringing in outside partners, international firms to help in that process is some kind of war insurance. What’s the status on that at this point?
Howard Shatz
There’s been discussion of war insurance. I think both MIGA, the World Bank Multilateral Investment Guarantee Agency, has discussed it. European Bank for Reconstruction and Development, as well. I think there are some nascent programs. They’re small.
Andrea
Yeah, very small.
Howard Shatz
My understanding, not not enough to make a big difference right now, although the war is still going on now. I’m afraid I don’t have more on that. I don’t know, Charlie, if you if you’ve seen more.
Charles Ries
Well, I would, one of the one of the aspects of our report writ large is that we do not feel that recovery or reconstruction is simply an economic problem. That is to say that the security challenges for Ukraine following the end of hostilities will be large. And you can’t achieve sustainable recovery without sustainable security. And that sort of stands to reason, right? If you want people to invest in an economy, they have to feel that their assets are going to be protected in the future. And so Gabby’s taking the lead in writing our chapter on security and our consideration of security aspects.
But in this context, when you think about I mean, just think about, you know, ordinary damages in an economy. If your if your house is flooded, you’re not going to rebuild the house unless you have flood insurance so that the rebuilding won’t won’t happen. And for that matter, you might actually want a levy or something like that so it’s less likely to be flooded. The same concepts apply to Ukraine. Ukraine — we would be in a relief phase unless the international community, the investing community, the aid agencies had confidence that the that that a year later there’s not going to be a renewed conflict and everything that you build is going to be blown up again.
Howard Shatz
Yeah. Andrea I’d add to that and build on that. The, the war insurance is going to be important, but it’s a small component. Probably more important, certainly as important, is some kind of security arrangement or some kind of security guarantee. And there are a number of things on the table with that.
Gabby Tarini
Yeah. I would just add to that that whatever security arrangement that Ukraine and its allies come up with, the the key is that any kind of arrangement will have to deter renewed Russian attack and the benefits of not re-attacking will have to outweigh the costs. And so, Ukraine will have powerful incentives to keep the peace in the form of this massive reconstruction effort in the form of EU membership, but Russia will not be offered any comparable benefits, and its adherence to whatever settlement or peace will rest principally on deterrence. And the U.S., of course, has a number of deterrence options at various strengths and levels, but finding an approach that will be strong enough to deter Russian re-attack, but that does not unnecessarily provoke Russia will be the key here for security arrangements.
Andrea
Interesting you say that because we’re just about to publish a story about what’s happening in the sort of run up to the summit in Vilnius and there’s obviously a lot of active discussion about just these very topics within the quad and then also reaching out to sort of the broader NATO membership. And it does seem like there is strong agreement that some kind of security commitments are needed. What form they take and what the specifics are seems to not be clearly worked out, but I but I take your point that deterrence is critical. How important is it for something to happen? Like what — how important is it for something to happen in time for Vilnius? Just to sort of send the signal?
Gabby Tarini
I think Vilnius represents a focal point for these discussions. I think that planning in the run up to Vilnius and at Vilnius itself would send a strong signal that allies are committed to finding some kind of security arrangement for Ukraine that will enable reconstruction. And, you know, membership in NATO would obviously be the strongest possible deterrent for Ukraine, but it’s clear that allies are not — there’s not unanimity in NATO on that right now and there’s not a consensus. And so the lack of consensus could delay or block Ukraine’s membership, which could reduce the deterrent that that NATO provides. So I think that in the report we cover a number of a number of alternatives for security and their respective drawbacks and respective benefits. NATO is certainly one of them, but I think it’s important to remember that NATO, which is the current model for European security, only offers a binary choice. A country is in NATO or it’s out of NATO. Allies have already begun to carve out new models in a third way as they’re providing assistance to Ukraine without forming a permanent attachment. And so, these alternatives that will be debated and considered at Vilnius may result in new models for Ukraine security that haven’t been seen in Europe thus far.
Andrea
Are you talking about something like what’s happening with Rammstein?
Gabby Tarini
Talking about potential security guarantees either from the U.S. or from the quad or from other non-NATO allies or some kind of multinational security guarantee. There are a number of different options that allies could consider in the run up to Vilnius and at Vilnius.
Howard Shatz
You know, in terms of — this is going to be this is going to be, I think, a very interesting month or two months. You mentioned, Vilnius. We have a number of things on tap. And all of these will feed into both the war and reconstruction, which is what we looked at. We have the London conference next week and there’s a real question about what will come out of that. Will it just be more words or will there be something concrete that comes out of it? We have Vilnius. We have – I haven’t seen it yet – I’ve been looking for it – we should have a report from the European Commission sooner than later on how Ukraine is doing for its seven requirements to move on from candidate status to — from initial candidate status. And, and so, you know, the Ukraine is quite intent on becoming a member of the EU, as well.
And then, of course, we have the counter offensive and all of these things are going to send signals both to Ukraine and to the world about Western support and, you know, about the near-term and the long-term, possibly. So, you know, directly in terms of reconstruction, the London conference will be important, and I suspect that Vilnius will then build on the results or somehow, you know, it will be at least in the back of the minds of people in Vilnius.
Gabby Tarini
I mean, to my mind, it’s been a two track kind of thing, right? The security is just happening over here. The economic stuff is happening over here. You know, there’s — it’s obviously connected, but yeah.
Charles Ries
That’s the point we’ve been trying to make that it is intimately connected. Totally connected. I mean, you can’t even — you can say, well, the economy can’t recover without security, but for that matter, you won’t have security if the economy is a disaster, which is, of course, what motivated the Marshall Plan, the fear of spreading disorder and in Western Europe, as, you know, two years of of relief lines soured everybody.
Andrea
Yeah. I mean, I think it comes to you see it — it comes into sharp relief with an incident like the dam being destroyed because it has so many massive consequences for everything. I mean, as you’re saying, crops and the environment, the mines, the security situation, just the energy electricity generation. It’s just compounded.
Charles Ries
Yes.
Andrea
Did you — I think I asked, but I don’t know. But did — do you have any kind of a sense of the dollar figure that would be? No?
Charles Ries
Well, we started talking —
Andrea
I was just asking —
Charles Ries
You mean specific to the dam?
Andrea
Yeah, the dam.
Charles Ries
No, I don’t think we — nobody seems to have a good handle on it. You can look at the pictures and see the flooding. It looks like a, you know, Hurricane Katrina or something like that, which itself was $7 or $10 billion. But obviously, it depends on the extent of the flooding, the damage to other infrastructure like bridges and power lines and so forth. And it also depends on the costs involved in drying out and rebuilding and that in some ways that won’t be known until the waters recede. It’s also Spring.
Jeffrey Hiday
Gabby, am I right that one of the things that you looked at here was lessons from other natural disasters?
Gabby Tarini
Yeah.
Jeffrey Hiday
I can’t remember which one of you did that. I think it was you.
Gabby Tarini
Yeah. I think in some ways the dam disaster kind of gets at one of the other threads in our report, which is that postwar reconstruction Ukraine is going to look a lot like post-natural disaster recovery reconstruction in the U.S. and all over the world in that the effects on Ukraine are whole of economy effects. So, we looked in our report at the lessons from natural disasters as they might apply to Ukraine’s reconstruction, everything from the need to sequence and prioritize essential tasks to get reconstruction jumpstarted, the importance of engaging local entities in civil society and reconstruction, the recognition that local capacity might be stressed with critical personnel displaced and wounding — wounded and killed, and everything from the need from donor coordination and IDP and refugee return. So there are some really critical lessons that our report examines from post-natual disaster reconstruction that could be applied to Ukraine.
Howard Shatz
One of the one of the other aspects of the dam break that has applied to the whole Ukraine war is that it’s leading to more displaced people. Ukraine already has about a third of its pre-war population displaced, either internally displaced or refugees in Europe. And so this will compound that. And that’s — that’s another cost and it’s another long-term challenge for reconstruction in that, as Gabby said, reconstruction is going to have to take account of of whether people will be able to be resettled where they came from, and if so, the sequencing of tasks that will that will go into that.
Jeffrey Hiday
Just tick through a few of the other things that you all think need to be done to get this ball rolling. I think some particular approach to U.S. legislation is in the mix. What do you all think on that score?
Charles Ries
Well, let me start with that and Howard and Gabby feel free to come in. We looked in that respect at the at the precedents from the enlargement, or well, of the the the fall of the wall and the incorporation of Central Europe in Eastern Europe after the breakup of the Soviet Union and and the Balkan conflict. And one of the things that Congress did with particular farsightedness, at least in our judgment, was to understand, first of all, that the U.S. efforts in this area needed to be coordinated with the Europeans and that there needed to be a senior coordinator with that responsibility. And at first, Deputy Secretary Larry Eagleburger was placed in charge of U.S. assistance efforts. And as — a series of of assistance coordinators for Europe were were appointed pursuant to the legislation for for Eastern Europe and separately for the newly independent states, the states that emerged out of the Soviet Union.
This coordinator had the the charge and the responsibility to coordinate all aspects of U.S. government, all the many alphabet soup of assistance agencies, some of which have changed names since then, to to make sure that our assistance was, A) coordinated with the Europeans, didn’t duplicate them, filled gaps, was effective, and on occasion to utilize something called “notwithstanding authority,” which allowed him to instruct agencies to do things, notwithstanding other provisions of law; very, very effective at stimulating growth and successful transition in countries like Poland, Czech Republic, and and also in the Balkans. And the two decade long history of that, it actually still continues to monitor that the U.S. investments in these areas, but the the the main effort made a real difference. And this is a reason why states like Poland today are as strong and economically vibrant as they are and able themselves to contribute to Ukrainian…Ukraine’s challenges.
Jeffrey Hiday
What level of individual debt would that be and what would the reporting structure be for?
Charles Ries
Well, I mean, there’s — there are two basic pieces of legislation involved. The support for Eastern European democracy or the SEED Act, and then the FSA, I think it was. I can’t remember what the one for the former Soviet Union was called. But they they set up this position, Assistance Coordinator Europe, and a whole office to coordinate all of the agencies of the U.S. government that were doing this kind of work and to coordinate with the Europeans.
Howard Shatz
Right now Jeff, right now there is there is coordination through a G-7 coordination platform. And the current people who are handling that is the deputy national security adviser for international economics from the United States, a director general from the European Commission, and then the minister of finance from Ukraine. And, you know, that’s a that’s the right level, but but all of those — all of those people have day jobs, as well, as opposed to a coordinator who would be full time on this. There’s another piece of legislation that that ought to be considered, and that is the United States in in helping Eastern Europe started what were called enterprise funds. And they they were investment vehicles for the countries of Eastern Europe and former Soviet Union. They did not lose money. They made money and they did exactly what what aid and really only aid is capable of doing, which was — or government assistance, which was taking on high risk, high risk, important tasks that the private sector might otherwise not fund, but that are very important for reconstruction. And, you know, given the successful model, that’s something that can be replicated and expanded for Ukraine.
Charles Ries
Yeah, the enterprise funds actually were run by independent boards, largely people with extensive financial markets experience, and their charge was generally to take minority positions in private sector investments that were strategic. So, often they invested in banks to get the financial sector up and running again and insurance companies and a wide variety of strategic investments where there may — there may be an identified private sector investor willing to to take it forward, but the investor either needs someone else as a partner to share the risk and the implied political support of a U.S. government affiliated enterprise fund.
These enterprise funds in many countries actually made money when they divested of their private sector firms. Six, seven, eight years later, they made considerable profits which were repaid to the U.S. Treasury, and then the surplus beyond that was converted into foundations that continue to be active in a lot of these countries even today. So, I mean, compared to grant assistance, which is basically granted, and, and you don’t get a continuing stream of claims, they’re financially advantageous. But more importantly, it seems to me that they fill a void in an immediate post-conflict situation where they’re high risks, as we’ve been talking about earlier. How secure is the situation going to be three years from now? And a strategic investor willing to take minority positions and important investments can make all the difference and it can be a decent investment for the taxpayers, as well.
Jeffrey Hiday
Thanks. Andrea, feel free.
Andrea
Yeah. Just real quickly on that. So, and I’m sorry I haven’t had a chance to read the report. Who which agency would do that? Is it — would it be like, you know, we have this multi-donor platform now for doling out, you know, or figuring out the needs and then doling out the money. Would it be that which seems to have a pretty, you know, where the EU’s got a pretty strong hand or are we talking about something that like would be home?
Charles Ries
Well, specifically, the enterprise funds themselves, they were U.S. government entities that the money was allocated. It was appropriate to USAID, but with the instruction that they fund enterprise funds in Poland and the other Hungary and so forth, Albania, whatever, and they did do that; generally in the $50 million range or so, the initial allocation of funds. And then they operated like investors, like a venture capitalist. And they they had a staff, dedicated staff, and they found investments that needed funding in partnership. They didn’t do anything all by themselves. The Europeans did not do anything similar to that in the in the aftermath of the Cold War. Their main contribution was the various enlargement processes; first the Europe agreements and then the enlargement process that that brought the Central Europeans into the EU eventually in 2004 and 2008.
Andrea
So, you would you would want that to happen through USAID again?
Charles Ries
Well, I mean, USAID, the the the the bureaucracy of USAID didn’t — I mean, they were a conduit for the money, but this was an independent organization. And they made investments as an enterprise fund with their own instructions to to fill strategic gaps and and make investments that would had the prospect of being profitable. There are other windows, of course. There’s the the former OPIC, which is now the develop — what is it?
Andrea
DFC.
Charles Ries
The DFC.
Charles Ries
Development Finance Corporation.
Charles Ries
Finance Corporation, which have similar mandates, although less country specific and less, kind of, entrepreneurial. And I would, you know, DFC can do a great deal. USAID can do a great deal. And what’s important is that we not in the in the aftermath of the conflict, that we not have a competition between aid agencies and the World Bank and other multilaterals, that there’s an understanding reached by senior level coordinators that are empowered and knowledgeable about who’s going to take the lead in what sector, who’s going to build hospitals, who’s going to build power grids, who’s going to work on the water sector. And then, whoever takes that on, alone or in partnership, has enough money and enough technical expertise to get it done.
Howard Shatz
Yeah. Andrea, you’re you’re hitting at a broader point, which is a real risk to reconstruction, which is the multiplicity of donors and lack of coordination. Now, you know, there are a couple of things that might mitigate against that. One is, as Charlie noted, senior coordinators is [inaudible] a coordination platform. But the third is that is that in terms of setting priorities, EU accession will play a very large role in setting the priorities for Ukraine. And so, you know, when we when we looked at organization, the U.S. has traditionally led on security issues in all of these cases after World War II, after the fall of the Cold War, after in the Western Balkans. Europe led on reform and reconstruction after the Cold War and in the Western Balkans. And and it is not just reconstruction. It is reform, as well, because Ukraine has been an economic underperformer ever since independence. It has had high levels of corruption. There’s some improvement, but but there’s widespread acknowledgment that there needs to be reform. And this this can all be done under the very invasive EU accession process. It will have to be done if Ukraine, in fact, wants to succeed at EU accession.
Andrea
Yeah. I’m afraid I have to hop off, but it’s been so fascinating. I’m just so, I mean, you know, I spent the month there in August last year, and I’ve been trying to get back. I mean, it’s just kind of staggering, you know, the needs, but also the resilience of the people and the, I mean, you know, incredibly like the financial sector and just it’s really kind of striking how much is still functioning despite —
Charles Ries
That’s the key. That is actually a key differentiator between this situation and, for example, Iraq and Afghanistan, where you didn’t have capable domestic governments. You didn’t have domestic unity. You had, in fact, an active insurgency. And it gives us a great deal of hope that with the proper international support, proper security environment, the continuing commitment of the Ukrainians to combine recovery with reform, this this can succeed.
Andrea
Thank you so much.
Charles Ries
Our pleasure.
Andrea
I hope we can stay in touch. I look forward to reading the report. Thank you.
Jeffrey Hiday
All right. Thank you. I’m going to hit one or two other points before we before we wrap this up. You all were talking about competition just then among agencies, governments, potentially multilaterals. What about potential competition between Republicans and Democrats here in the U.S.? You note the importance of bipartisanship in this effort. How — what what can be done from our perspective on that score? Maybe Gabby could start on this one.
Gabby Tarini
Yeah, I think you hit a key point. Sustaining U.S. public support and sustaining bipartisan support will this — for this effort is going to be vital for its success. And I’ll just point to one of our historical case studies as an example of this. In the lead up to the Marshall Plan, the Truman administration, as well as congressional leaders, embarked on a very well-coordinated bipartisan effort to gain public support for the Marshall Plan. And although the Marshall Plan stands out for its success, the — this support and the public approval was not at all certain. It really took a massive grassroots public education campaign to get the public to understand what the benefits of this plan, the use of their tax dollars, would accomplish. The administration was in touch with Congress at every step of the legislation from the very beginning. And so it’s it’s critical that this administration do the same thing as it thinks about how to fund and spend taxpayer dollars on on this effort in a, you know, a pretty contentious political environment.
Jeffrey Hiday
Charlie or Howard, did you want to weigh us?
Charles Ries
Well, yes, it’s absolutely vital to to to do this in a bipartisan manner. And and Arthur Vande — Vandenberg played an important role in the in the Truman effort to get support for the Marshall Plan and for NATO, for that matter, who was an important Republican Committee chairman at the time. But also, it’s important, I think, for for Americans and for the U.S. government writ large, Congress and the administration, to talk to the American people around the country so that they understand the stakes and they really, the stakes couldn’t be higher, is basically — it it would be wonderful if Ukraine can win the war, but that success would be lost if they lost the peace.
Jeffrey Hiday
Next week there will be the donors conference in London. What are your thoughts about how that’s coming together? Advice you might have for those who are attendance — in attendance and the U.S. role there?
Charles Ries
Well, I’ll start. Howard, I’m sure will have other insights, as well. This is the Ukraine recovery conference. It’s not the donors conference, it’s the Recovery Conference. And I think that in this case, the name matters because it is all about all of the elements that the international community should be aware of for for the successful recovery postwar of Ukraine and its integration with the rest of Europe. It’s a good start. In Lugano last July, the Lugano Ukraine Recovery Conference, which is co-sponsored, co-hosted by Ukraine, and in that case, the Swiss, in this case, the British, put out something called the Lugano Principles. And they’re really very much consistent with what we’ve been saying in our report, as well. It’s about partnership. It’s about local involvement. It’s about reform. It’s about transparency and accountability. All these things are Lugano principles. And as I read the London conference, there will be further elaboration, both of those principles and of the planning and coordination for the assistance phase and the recovery phase to come.
Howard Shatz
The Recovery Conference is going to talk about assistance. A lot of focus is on assistance. We found in the relevant cases that assistance is important but doesn’t necessarily make up for the majority of funding. And there’s there’s got to be a lot of private sector investment. It has to come from international investors. It has to come from Ukrainian investors, whether they’re in the country or the diaspora. And part of what is going to motivate this investment is international linkages. So opportunities to trade, basically, the business environment in Ukraine. And after World War II, the United States through the Marshall Plan, through the institutions, made sure that the Europeans would trade with each other. After the fall of the wall, there is an enormous amount of German investment, primarily European investment, into what was then the Visegrad Four: Hungary, Poland, Czech Republic, and Slovak Republic. And that made a difference. Western Balkans, I think you’ll see the countries that are most successful are those that are most globally linked and attracting investment. Same thing in other postwar reconstruction events. So, you know, there’s — Ukraine really needs to pay quite important attention to its business climate.
The other thing is corruption is a big issue. [It] has been a big issue for 30 years in Ukraine. And, you know, if if there is ever fragility in international support, it is likely to be caused when there is a major reconstruction scandal. And so, there needs to be some kind of strong inspector general function in Ukraine. There has to be strong monitoring and evaluation by international — by financial institutions, by bilateral donors. That has to be arranged. And there also has to be extensive data sharing between the international community and Ukraine so that reconstruction can be monitored and corruption can be limited. It’s been plaguing — it’s been a problem for Ukraine since 1991, and it will be an even bigger problem, more that Ukraine needs international support.
Charles Ries
Can I can I just piggy back one last point on that. Howard’s point about how investment needs to come from Ukrainians themselves, the Ukrainians that are internally displaced, those outside of the country, and Ukrainians that are in place. One thing that is important for that is a supportive domestic financial system. If you think about it, there’s widespread destruction of housing. Housing is a particular example where mortgage finance, housing finance of whatever sort can help Ukrainians themselves invest in their own future, their own rebuilding, their own houses. And the same is true for small businesses and and little local Ukrainian companies.
If they can get access to domestic finance, that’s really important. And that’s one reason when we were talking about the Ukrain — the enterprise funds, mentioned the fact that many of the enterprise funds made strategic investments in banks. The banks then lent — they basically made a market, a domestic credit market, to provide lending to those who were rebuilding their own facilities. And that’s just as important as getting Ford or Mercedes to build a new factory, because that’s economic activity and that’s addressing the needs of the people as seen by them themselves and willing to take a share of the risk in doing so.
Howard Shatz
Jeff, one other one other source of financing, which is being widely discussed is the use of Russian assets; both official assets — reserves that are now frozen in the West — and assets that belong to people under sanction that can be separated then if there’s some kind of criminal link. There’s a lot of money at stake, probably on the order of $300 billion or more. Using the private assets, the oligarch assets, is a little easier. There’s more legal ground on that. There’s still a number of issues around using the Russian official reserves and and there there are two main ones. One is there’s — legal authority right now is quite debatable for turning those assets from frozen into seized and then repurposed. The other is, you know, there are risks to the international financial system, the use of the dollar as a reserve currency, and and, you know, what kinds of other arrangements have been made with those reserves. So, this will all be worked out. It’s — they will likely end up being used for reconstruction. But it is not simp — it is not as simple as saying we will use the frozen Russian reserves for reconstruction.
Charles Ries
It will clearly be part of a postwar settlement, Russian indemnities for damages that they have caused.
Jeffrey Hiday
Okay. Lots to chew on. All right. I think we’ll call it here. Charlie, Gabby, Howard, thanks for joining. Dianne, Leah, thanks for helping organize. Thank you, everybody.
Narrator
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