The path to reparations: Vladislav Inozemtsev on mobilizing Russian capital to rebuild Ukraine

The next step should be the creation of the Ukraine Recovery Fund, the founders of which will be all the signatory countries and organizations — and Ukraine itself. The government of Ukraine, as a potential beneficiary of reparations and the party demanding their payment, should appoint the Fund as the sole operator of these payments: if Russia decides to pay for the damage, the Ukraine Recovery Fund — and only the Fund — will be the recipient of the money. Once this infrastructure is in place, the following steps are possible.

The G7 countries and the European Commission should then audit the frozen Russian funds and the conditions of their placement in depository banks (when sanctions are lifted, banks must return both the principal amount and the income accumulated in accordance with the terms of the contracts in force at the time of the sanctions). Given that the sanctions were imposed in February 2022 and the first Federal Reserve (Fed) and European Central Bank (ECB) rate hikes took place in March-May 2022, we can assume that the effective yield on deposits was close to zero.

After completion of the audit, banks should then be offered to issue loans to the Ukraine Recovery Fund. The size and currency of these loans should mirror the frozen Russian assets held in these banks. The interest rate for the loans should be established at the level outlined in previous agreements, along with an additional 0.1% annually. The ECB and the participating central banks should exempt lending banks from setting aside provisions for potential loan losses. Additionally, entities like the World Bank can supply a guarantee for these loans, with corresponding assurances obtained from the countries that are founding members of the Fund.

With the money collected, the Fund can start issuing loans to the Ukrainian government and to individual companies that have suffered losses from the Russian invasion and are working to rebuild the country's destroyed economic sectors. In this case, the Fund would exercise control and guidance over the utilization of funds, effectively making the program a modern-day variation of the Marshall Plan.

A financing plan that functions like a credit line but with almost no interest (the interest for the initial five years could be managed from a different credit source within the same Fund), in my opinion, is ideally suited to the needs of post-war reconstruction. This plan would essentially apply the concept of co-financing that's already used in the European Union for less developed regions. It would also help to avoid corruption and make sure the money is used efficiently for various economic and infrastructure projects.

At the same time, the scheme will not violate anything that the Western authorities currently fear: Russian assets will still be frozen and not seized; there's no direct tie between these assets and the money allocated to the Fund; and Ukraine can make use of the funds in a relatively short time frame. If Russia agrees to pay the amounts demanded by Ukraine, they would be credited to the Recovery Fund as the reparations administrator, and immediately debited to creditor banks, which, with the consent of the authorities of the Fund's founding countries, would unfreeze Russian assets for the corresponding amount (this is likely to increase the willingness of future Russian governments to pay reparations, as these payments would effectively acknowledge the loss of long-frozen funds, and might also serve as a condition for halting a series of reparations payments to Ukraine).