Understanding the real value of US financial assistance to Ukraine

“Under the Republicans, not a penny more will go to Ukraine,” Rep. Marjorie Taylor Greene said. tonne at a Trump rally in Iowa ahead of the midterm elections. Although his position is extreme—and unpopular with the American public – many Congressional Republicans share Kevin McCarthy’s reluctance to give Ukrainians a “blank checkworth tens of billions of dollars. They are wrong. America’s generosity to Ukraine is not about charity. Military assistance to Ukraine keeps Russian aggression away from NATO borders. A Ukraine overrun by Russian forces would have made the eastern flank of the alliance more dangerous and more expensive to defend.

Far from being a frivolity or, more nefarious, a transfer from Western taxpayers to Ukrainian oligarchs, US financial aid to Ukraine is just as important as artillery and ammunition. Keeping the country afloat economically is necessary both for Ukraine’s success on the battlefield and for the country’s prospects of becoming an asset to our alliances after the war, rather than a liability.

Due to the conflict, the Ukrainian economy is expected to shrink by 35% this year. The International Monetary Fund estimates that Ukraine needs around $3-4 billion a month to cover its financial needs, which the Ukrainian government is clearly unable to borrow at market rates. The US commitment of $15 billion alongside the $18 billion pledged by the European Union for next year, and smaller amounts of bilateral aid from other countries, as well as aid international financial institutions, will go a long way towards filling the budget gap.

This international financial aid has a double effect. On the one hand, it helps Ukrainians avoid extraordinary measures that are otherwise common in wartime economies. This would irreparably damage Ukraine’s transition to a normal European-style market economy. Assistance also provides Western donors with powerful levers to accelerate this progress, during and after the war.

One of the economic hardships that Ukraine avoids with international aid is massive seigniorage. Without Western financial assistance, Ukraine would have to print huge sums of money to finance its public finances, with potentially catastrophic economic and social effects, including crippling inflation. Moreover, the war effort would require a much greater use of industrial planning, government takeovers of industry, rationing, and price controls. In short, Ukraine should undo most of the economic reforms it has initiated since 2014, including phasing out unnecessary energy subsidies and cleaning up and privatizing the banking sector. Even if he emerged victorious from the war, he would present a much stronger connection between politics and big business, further strengthening the country’s oligarchs.

Economic policies introduced during wars are not easy to roll back and often leave lasting damage on economic performance decades after the onset of peace. The UK went through a period of economic decline relative to its continental neighbors in the 1950s and 1960s. was a direct result of an archaic system of industrial relations characterized by the control of crafts, multi-unionism, legal immunities for unions, strong but decentralized collective bargaining, price controls and extremely high marginal tax rates (more than 99 percent) introduced as necessities during the war but only fully dismantled following the country’s accession to the European Economic Community.

None of this is to paint a rosy picture of Ukraine’s economy and/or its economic policies at present. Thanks to external assistance, the previously well-capitalized banking sector has remained stable. Yet the government nevertheless had to introduce capital controls, guarantee bank deposits and suspend various payments – taxes, mortgages and the like. Necessary as they may be to cushion the immediate social impact of war, such policies virtually guarantee a financial crisis once the war is over.

Even more worrying, a certain government control over the economy has taken hold. Five “strategic” companies were seized by the state from private hands in early November, in a strange echo of the corporate raids that were ubiquitous in pre-Maidan Ukraine, where oligarchs used law enforcement tools to steal assets. In a move the government has thoroughly denied was nationalization, the state took over the country’s biggest oil producer, Ukrnafta, and Ukrntatnafta, the main refinery, which was damaged earlier in a Russian strike. (Both companies are owned by Ihor Kolomoyskyi, a US-sanctioned oligarch). He also seized aircraft engine and helicopter manufacturer Motor Sich (owned by Vyacheslav Boguslaev, charged with treason for evading sanctions over Russian sales); the truck manufacturer, AvtoKraz; and Zaporizhtransformator, a company manufacturing components for the Ukrainian power grid.

Were they justified takeovers economically struggling but strategically important companies, attacks on corrupt oligarchs or simply bailouts? Whatever the reason, similar ad hoc takeovers of private property should remain the exception rather than the rule, even in times of war. This means that the Ukrainian government will have to buy the products of these companies with money, which they will need from foreign sources.

It is understandable that the government of Volodymyr Zelensky wants to deflate the economic power of the oligarchs, as he pointed out with the legislation it passed last September, which banned oligarchs from holding state office and participating in the privatization of state assets. The war also seems to have diminished Ukraine’s oligarchic figures – after all, there is less to steal from government coffers. Also, unlike in peacetime, stealing is tantamount to treason.

Western donors, including the United States, should insist that the best defense against unscrupulous oligarchs regaining excessive economic power is to implement Western-style antitrust policy restraints and ensure that the markets in which oligarch-owned businesses operate are both open to competition and untied to government budgets. The closer Ukraine gets to its post-war reconstruction – and recent news from Kherson gives cause for optimism – the more important it will be to accompany financial aid with guarantees that the money will be well spent, in the interests of Americans and Westerners alike. taxpayers and in the interests of the Ukrainian people.

It is reasonable to demand stricter control of American aid, including by Congress. Several Republicans earlier this year introduced bills to create a special inspector general for Ukraine modeled on the special inspector general for Afghan reconstruction. Serious engagement in such efforts is a small price to pay for the administration to ensure that support for Ukraine remains bipartisan.

In the interest of the Ukrainian people – and in the interest of bipartisanship on a crucial issue for the United States – it is important to clearly define the economic and financial aspects of our commitments to Ukraine. But that doesn’t mean taking a short-sighted, crudely transactional view of war.

Ukraine’s fight is also our fight, and its success would be a massive victory for the United States and our global alliances. The United States supports the Ukrainian army to defeat the Russian army, but supports the Ukrainian economy to create a strong and free ally.