Success on Ukraine requires forward-looking economic coordination

A volunteer of the Ukrainian Territorial Defense Forces assists a woman to cross the street in Kharkiv, Ukraine
Associated Press/Andrew Marienko
A volunteer of the Ukrainian Territorial Defense Forces assists a woman to cross the street in Kharkiv, Ukraine, on Wednesday, March 16, 2022.

The West’s attention is rightly focused on Ukraine’s urgent military and humanitarian needs, including supporting the more than 3 million Ukrainian refugees and the nations sheltering them. The bipartisan commitment in the United States to provide Ukraine with $13.6 billion is leading the international response. U.S. and NATO member countries are planning future military support options, and healthy debate is underway about possible peace settlements and future regional security arrangements.  

However, on the humanitarian and economic side, there also is a serious need for key nations and international institutions to initiate forward thinking regarding urgent, longer-term financial contingencies ahead for Ukraine and other affected states. 

{mosads}There are implications for the global economy. The Organization for Economic Co-operation and Development’s (OECD) new study underscores how disruptions and increased costs will spread to some developing economies, as well as to Europe, the U.S. and other wealthier economies. The OECD estimates that the conflict’s sustained effects could reduce global growth by more than 1 percent and increase global inflation by close to 2.5 percent. 

Having a coordinated assessment process led by a core group of institutions and donors will be invaluable. Having a coordinated assessment process among key institutions and donors will be invaluable. An ongoing international planning process will encourage Ukrainians that their partners will be ready to help them rebuild, and other affected countries as they weather the impact of higher food, energy and other commodity prices caused by the interruption of Ukrainian and Russian exports. 

This forward-thinking core group should include representatives of the World Bank, International Monetary Fund, European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), United Nations Development Program (UNDP), U.N. High Commissioner for Refugees (UNHCR), and U.N. World Food Program. It also should include key donors — the United States, European Union (EU), the entire G7, and Ukraine’s government. This group can work with additional institutions and governments to address specific problems as needed, and could include working groups focused on energy, food and supply chains. Such international coordination worked well after 9/11. 

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It is essential to coordinate so the rebuilding of Ukraine can begin as soon as circumstances allow. The UNDP has released an initial study describing massive economic costs for Ukraine, with up to 90 percent of the population facing poverty under severe scenarios. Given this danger, the UNDP is exploring the prospects for a large-scale emergency cash transfer program to help meet the needs of Ukraine’s people. Rebuilding Ukraine’s infrastructure will necessitate enormous additional funding. Ukrainian authorities say infrastructure damage already tops $100 billion, and reconstruction costs mount daily with the Russian bombardment. 

Experts highlight the urgency for financial institutions to develop a strategy to mobilize a major increase in concessional loans for countries hosting Ukrainian refugees. The OECD has done initial work to look at the costs these front-line states face and has recommended policy responses to help absorb the burden. Some have suggested using frozen Russian assets to help pay.

Adding to the direct support that Ukraine and its front-line states need are the aforementioned market risks to the global economy, to include rising commodity prices and a potential Russian debt crisis. The impact will be higher among countries bordering Russia and Ukraine. Emerging market countries along Russia’s south, for example, are bracing for the possible return of millions of their citizens working in Russia, the end of billions of dollars in remittances, and the loss of significant exports. 

The OECD suggests ways to help cushion the blow, as do other articles looking at the effects on agriculture, fertilizer, minerals and energy. Key institutions should conduct coordinated reviews to try to contain the negative economic effects of these disruptions.

{mossecondads}In a related sphere, a concerted international group effort is also vital for making economic sanctions as costly as possible to Russia. Sanctions will be reviewed and augmented as the conflict progresses to increase pressure on Moscow. Sanctions enforcement and tracking down sanctioned Russian assets are crucial.   

International finance and law enforcement officials held a first task force meeting last week to better “freeze and seize” Russian oligarchs’ assets. This effort must take on the same intensity as the international campaign to clamp down on terrorist financing after 9/11. Success required whole-of-government efforts (including intelligence, justice, finance and diplomatic expertise) and a concerted, multi-year global campaign to build effective networks against terrorism. A similar effort is vital today, especially since Russia will work hard to persuade other governments not to support or abide by the West’s sanctions. We’ll need determined diplomacy to convince countries not to break the sanctions and not to shelter corrupt money from Russia.  

The numerous warning signs about the wider implications of Russia’s war in Ukraine make it important to organize experts now to develop agreed-upon needs assessments, contingency plans, and action recommendations for supporting the conflict’s front-line states; for meeting Ukraine’s future needs; and for managing other emerging economic risks. Proactive planning and sustained action among Western partners on the economic agenda will be key to achieving a successful outcome.

Earl Anthony Wayne, a former U.S. ambassador to Mexico and Assistant Secretary of State for Economic and Business Affairs, is board co-chair of the Wilson Center’s Mexico Institute and a Distinguished Diplomat at American University’s School of International Service. Follow him on Twitter @EAnthonyWayne.

Tags higher prices military spending Russian invasion of Ukraine Ukraine refugees
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