The Ukraine reconstruction mandate is too big for the EBRD

I am seeing lots now writtten on Ukraine reconstruction, lots of planned reconstruction conferences being sponsored by different entities - one planned in Luxembourg at the end of this month, and then a big one set for the UK in June. It does though still seem as though there is little overall donor coordination when it comes to finance. Obviously on the military front there is the Ramstein format which is proving to be very effective in coordinating Western/Ukrainian positions around military supply and financing. But I still don’t see the same on the financing front actually neither in terms of funding the war or the reconstruction effort. It’s all very piecemeal. 

I would (and have) argue that Ukraine needs a parallel Ramstein style coordination effort for financing the war and reconstruction. The US seems to be taking the lead on Ramstein by virtue of it’s obviously dominant position when it comes to military supplies within NATO. We are not though seeing the same kind of leadership from the US when it comes to the post war reconstruction effort - guess as there there is hope in the US that that’s something that Europe can lead given its close proximity, huge resources, and economic ties to Ukraine. The problem here though is that there are still very different opinions in Europe about how to finance Ukraine - debt vs grants, and should some the EU and other Western countries followthe Canadian lead and fund financial support for Ukraine by borrowing on its behalf?

But whether we decide now or later, what is clear is that there needs to be an entity in the West which will take the lead in terms of coordinating the Ukraine reconstruction effort at least in terms of Western financing flows to Ukraine. We can think about how that interacts then with Ukrainian entities.

The sense is that entities like the IMF or World Bank don’t have the right mandates, ownership structures (do the Russians and Chinese have the same interests as the West in Ukraine’s succesful reconstruction? Obviously not) or even skill set to take the lead here? They clearly don’t.

One idea muted is that all this could be led by the EBRD - and certainly EBRD officials I have spoken to appear enthusiastic about the prospect. It seems to be being pushed even by the EBRD leadership.

In its favour is the fact that the EBRD exists, it has a functioning secretariat, with plenty of experience in the the region, and particularly in Ukraine. 

Supporters of the EBRD taking up the leadership/coordination role for Ukraine war financing & reconstruction argue that it could hit the floor running, while setting up an all new Ukraine reconstruction fund or agency (the Agency for Ukrainian Reconstruction and Accession - AURA) would take much time to create. 

All that is true, but I would still have serious reservations about giving such a mandate to the EBRD and for numerous reasons:

First, it’s cadre is composed mostly of bankers, and I am not sure it has the broader political, social and developmental expertise to lead such an important project. True, they can be hired in, perhaps quicker even then tooling up an AURA type entity.

Second, and more substantive in my mind, Ukraine’s succesful reconstruction is so mission critical now to Ukraine’s survival (its ability to fund its own defence), and ability to fend off the likely constant military threat from Russia, that I am not sure that fobbing off such an important project to the EBRD, almost as an afterthought, really sends the right kind of signal as to the importance of this project. 

Further, the importance of Ukraine’s succesful economic reconstruction, recovery and development goes beyond Ukraine, but this is a critical project for the West in its battle to see off Russian and more broadly autocratic attacks on our system of Western Liberal Market Democracy. Ukraine has become the front line for NATO and the West against a new expansionist Russia. We should all have an interest in Ukraine becoming economically succesful, self sustaining, and able to fund its own defence, and actually ours.

This project should be so important that the West unifies around, commits and invests big time in it, and it should be important enough to warrant itsown development agency or institution. 

Remember that that the EBRD was created in the early 1990s to help deliver the transition from plan to market, following on from the collapse of the Communist block and the Soviet Union in 1989-1991. Perhaps developments in Russia now, and with its full scale invasion of Ukraine in 2022, show that that particular project is still not completed or succesful. That said, the EBRD, has since moved its sights beyond the region to Turkey, and North Africa, as I think it’s mission and mandate has become blurred. But I would argue that the importance of Ukraine’s succesful reconstruction, et al, is as important as the mission established for the EBRD back in the early 1990s. It’s so important that it deserves its own agency with its own specific mission. Creating such an agency would send an important message to Ukraine, but more importantly perhaps Russia itself, that the West is in this for the long haul and is absolutely committed to making Ukraine succesful, and it is not trying to do Ukraine reconstruction “on the cheap”, by throwing a carrot of responsibility to the EBRD. 

Third, and related therein, I don’t think the EBRD can be sole charged with leading the Ukraine reconstruction effort as it is surely conflicted in terms its shareholder structure, and its mission - as are the IMF and World Bank. It’s shareholders includes the likes of Russia, and non NATO members, who might have very different objectives - clearly they do, than Ukraine’s succesful economic recovery. And how Ukraine get adequate focus and priority when the EBRD’s mission is broader, still to ensure the original transition of Emerging Europe from plan to market, but now beyond this region to Turkey and North Africa? The shareholding and existing mission of EBRD will surely pull it in a different direction, and risks having its focus taken off the ball of Ukraine reconstruction.

Fourth, and let’s think of Ukraine and the brave Ukrainians who have fought for their survival against the brutal Russian onslaught, and our defence - the defence of Western Europe. Do they not deserve full focus, and support, from Western friends, allies, in ensuring the successful reconstruction, recovery and development of Ukraine. What kind of message would it send if the West in effect subcontracted out the reconstruction, recovery and development post war to an entity created years back with a very different mission - and still responsibility for Russia’s transition from plan to market. Is Russia going to be kicked out of the EBRD as a starting point, if EBRD’s new priority focus will be Ukraine?

Fifth, Ukraine’s reconstruction needs are huge, with estimates now ranging from $500bn to $1 trillion. Western tax payers will not fund such huge figures. Inevitably the burden will have to fall on the privete sector. But the private sector will surely have huge concerns about investing in Ukraine given the track record of corruption/rule of law issues, and also now security concerns. For private business to commit to Ukraine’s reconstruction it will surely need to be assured of the importance of this project to Western donors, that Western governments stand behind Ukraine. I just don’t think here that subcontracting coordination here to the EBRD sends the right kind of message. It does not signal that this project is important enough that the West is in it for the long haul. But forming a specific development agency or institution specifically charged with Ukraine reconstitution would do exactly that - it could also be a partner for private business in terms of debt or equity financing/investment.

And remembering all those rule of law type historical problems in Ukraine private investors will want any agency leading/coordinating Ukraine reconstruction to have enough leverage/capital to push policy makers in Ukraine to push back against the old vested interests that stalled rule of law reform before the invasion. To its credit, the EBRD did lead the way here in Ukraine in the energy and banking sectors. But truth be told it did not have enough leverage to be as successful as it could have been. Only by creating a real heavyweight institution, with real economic and political muscle, will it really have a chance of beating the old vested interests in Ukraine. And for private capital to flow into Ukraine these old vested interests need to be beaten and rule of law established in Ukraine.

I know it’s going to be difficult to create a new institution solely changed with Ukraine’s reconstituting, and in the short term it might just be quicker to give EBRD such a new mandate. But I think Ukraine’s successful recovery is so important that it is worthy of its own institution, with a clear and very focused mandate. It is an investment in Ukraine’s successful reconstruction and recovery which needs to be thought through, funded and created now.