Invest frozen Russian assets in Ukraine

Simple solution for Ukraine reconstruction

I have argued previously - vehemently - that frozen Russian assets should be allocated/transferred/given to Ukraine for funding the war and reconstruction.

With the Russian state now taxing Western companies trying to exit Russia, the case for now confiscating Russian assets is absolutely compelling. More than that - it simply has to be done. 

But we have the usual bull from Western treasuries and lawyers that nothing should be done to damage the perception of the rule of law in the West - hello, wake up and smell the roses, if we lose this war there will be no rule of law in the West to maintain, and also remember where was the Western rule of law in the first place which accepted dodgy kleptocratic funds from Russia?

As an interim solution, the EU is pushing the idea of allocating investment returns on frozen Russian assets. 

Question then is how best to earn returns on these assets - where should frozen Russian assets be invested?

Actually Ukrainian bonds have amongst the highest yields in EM space. Maybe the best solution is allocate frozen Russian assets to buy Ukrainian assets - use them to buy Ukrainian war bonds, Eurobonds, et al. The latter will yield huge returns to be invested in Ukraine reconstruction, cut Ukraine’s borrowing costs, ease its eventual market re-access to international capital markets, and potentially avoid a future effort towards debt restructuring. And even therein, imagine if Russian frozen assets were used to buy Ukrainian Eurobonds, then subject to restructuring as per the recent Paris Club statement - then Russia would be bailed in to that to ensure Russia, through its frozen assets, helps with burden sharing. Oh the irony.

I suggested something similar a few weeks back with the idea that Russian assets are used to buy Requisition Bonds to fund Ukraine reconstruction. It’s a bit similar. 

The beauty of the above - the symmetry of it - is if Russian frozen assets were invested in Ukrainian assets, Russia might have a greater interest in not destroying Ukraine.