Ukraine - all conferenced out

I have been attending the Ukraine Recovery Conference this week, and a few takeouts from the first day:

First, top down messaging was cast iron support for Ukraine: Sunak, Blinken, von de Leyden, Cleverly (and half the UK cabinet, plus Johnson turned up in the foyer to take adoration from the Ukrainian crowd - much to the annoyance of Sunak), plus Baerbock, and foreign ministers of France, Italy, Denmark, Czech Republic, Poland, Estonia, Latvia, Norway, Turkey. Really quite striking unified message and extremely high level attendance. 

And I guess if nothing else was achieved from the event, this leaves a really lasting impression.

Hakan Fidan, the former head of Turkish intelligence and now the FM of Turkey, was due to speak on a panel but left early, with Blinken, and held a bilateral with him, I assume to talk about green lighting Sweden’s NATO membership, which I expect to happen by the Vilnius NATO summit.

Tickets were impossible to get, btw, and I had numerous business types asking me how to get in.

Second, and linked above, EU accession is happening. Von de Leyden spelled it out in the best speech of the day by far. No doubt, according to her, plus all the others. I actually believe it myself here, notwithstanding all the failed promises in the past to Turkey, et al.

Third, big cash commitments:

• €50bn EU budget/recovery money for 2024-27, add in the €24bn for 22-23, that's €74 billion total from the EU.

• The Brits, Yanks, Norwegians and Canadians added in a further $2-3bn of new money.

• Plus, I heard from a good U.S. source that prospects are good for McConnell to agree another $60bn aid package for Ukraine this year, to take Ukraine thru beyond the next US election. They don't want to get this stuck with the election campaign. 

Still the WB's latest estimates put the rebuild cost at $411bn, and that's before the Khahovka Damn explosion. Recognition that there is not enough money around to fund this, so effort to join up the public and private sector plus using frozen Russian assets.

Fourth, frozen Russian assets. Big focus of the event, and lots of side events. But Von de Leyden committed the EU to bring a solution by July which will allow monies to be allocated therein to Ukraine. Heard universal support that it needs to be done, only issue from some is how to do this legally - which was Sunak’s line. It still might be that they opt for an interim solution which is to allocate investment returns from frozen assets to Ukraine, which could still be up to $10bn (minimum) year from the EU frozen funds (most of which I hear are in Belgium and France). Russia is though never getting these assets ($400bn) back, unless it agrees to peace and reparations. The UK is legislating as much.

I still like the idea of issuing Ukraine Recovery Bonds, where frozen Russian assets are swapped in effect for new issuance of bonds from Ukraine. Other ideas I heard are using frozen Russian assets as collateral for new bond issuance - I wonder if this could be from the EU. Note on the latter that Von de Leyden mentioned potential debt issuance by the EU to fund the new €50bn commitment to Ukraine reconstruction.

Fifth, Black Rock/JPM have done preparation to create the Ukraine Development Fund, a Ukrainian development bank/sovereign wealth style entity in effect. Andrew Forest the Australian billionaire has seeded it with $500m. They are angling for it to be the Ukrainian Temesek. 

I have previously argued that Ukraine needs a sovereign wealth fund style agency to coordinate reconstruction but I would have preferred it to be a joint G7-Ukrainian agency. It would also have a broader mandate to lead/coordinate the recovery effort. This would be a partner for private investment, a champion for reform, and able to issue on its own behalf to fund reconstruction.

Sixth, the message from the West is that one way or another the money is coming for reconstruction, but that when the war ends Ukraine needs to do its bit by delivering on the reform agenda (governance, judicial reform, fighting corruption, rule of law). Private investment will just not come unless there is a sea change in the business environment from before the full scale invasion.

On this point I did not agree with Sunak’s starting point from his keynote speech that before the full scale invasion Ukraine was presenting itself as a great investment opportunity. The reality, as most Ukraine observers would admit, is around the rule of law/governance issues, progress was way too slow, and Ukraine might have offered opportunities but also huge risks related to the poor business environment. This has to change or else the private investment will just not come. Hard reality. We hope the war and a real EU accession perspective will change this, but it might not. Zelensky has been a superb war time leader - simply incredible - but he struggled in peace time to really get a grip with all the issues around rule of law. Let’s hope one peace dividend is new political capital to be deployed to produce a sea change around rule of law related issues, helped by EU accession.

PS, one final point that brought a smile to my face was me arriving on my bike, in cycling gear. I tried to register for the event at the main registration desk at which point was told that I was at the wrong place and that “staff, had to go in thru the side door”. I guess the UK is still not that bike friendly - surely that would have never happened in the Netherlands. Is it my accent that makes me appear like the hired help? Fending off a mugger on the way home added to the excitement of the day. There were hundreds of police at the event (just hanging around taking in the sun), but it’s a shame the same police were not around to police the streets of London just a mile or so from the event.