Who should coordinate Ukrainian reconstruction?

GENEVA  —  Right-minded governments are providing Ukraine with military hardware and financial infusions, albeit some more generously than others, to enable the Ukrainians to fight back against Russian aggression. At the same time, efforts are under way to estimate the costs of postwar rebuilding and plan for allocating reconstruction aid.

The more entities are involved the better. Reconstructing Ukraine’s economy will cost hundreds of billions of dollars. This effort cannot be financed by a single or even a small handful of sources. National and subnational governments will provide bilateral aid. Multilateral and regional development banks will underwrite projects. NGOs will mobilise donations. Expats will supply remittances. Corporations will provide foreign direct investment.

Importantly, their efforts should be coordinated. Otherwise, Ukraine will have railroads rebuilt to match Western European gauges but no suitable rolling stock. It will have school buildings but no textbooks or laptop computers, as donors scramble to take credit for visible reconstruction projects.

Some organisation must act as the “brains”, or coordinating entity, for the reconstruction effort. It is tempting to say that this should be the Ukrainian government. No one knows Ukraine’s reconstruction needs better than Ukrainians themselves. Reconstruction will go more smoothly if Ukraine takes ownership of the process.

But the reality is that donors will donate only if they can monitor and exercise reasonable control over their funds. Worries about corruption and Ukrainian oligarchs may have diminished because of the Zelensky government’s effective wartime response, but they have not gone away.

Moreover, the coordination problem is significantly more complicated than it was under the Marshall Plan, when the United States was the sole donor and could wait until three years after World War II to create the Economic Cooperation Administration, which was tasked with administering aid to Europe. With the “New Cold War” having turned hot, Ukraine’s needs are immediate. Inevitably, scores of donors will be involved.

Who, then, should be the coordinating entity, if not Ukraine? One possibility is the European Commission. Accession to the European Union is the economic endgame for Ukraine. Putting the Commission in charge would ensure that Ukraine’s hard and soft infrastructure conforms to EU standards. The Commission already administers the Recovery Plan for Europe, under which funds are provided to help finance EU member states’ green and digital transitions. Governments present comprehensive spending plans, which then are vetted and approved by the Commission before funds are disbursed.

This is a logical model for Ukrainian reconstruction. Not surprisingly, the Commission has already volunteered its services.

But the US, Canada, Japan, and other non-European donors would not be happy with this arrangement. They would be unwilling to pour their funds into a pot controlled by a body not accountable to them. Yet, having donors go their own separate ways runs the risk of reconstruction gaps and duplication.

Another candidate for the role is the OECD, which has reviewed Ukraine’s public investment arrangements, public administration management, and regional development programs, among other policies. But the OECD’s strength is in policy analysis, not executing projects. It is more a talking shop than it is an implementation engine.

Still another possibility is the Bretton Woods institutions, which have been involved in post-conflict reconstruction efforts over the years. The International Monetary Fund would provide immediate budgetary support and coordinate debt restructuring. The World Bank would allocate funds for reconstruction projects.

But the Bank is an immensely large and complex bureaucracy that is simply too slowly moving to do the job. With projects in hundreds of places worldwide, it must keep many balls in the air. And it is far away, in Washington, DC.

The German Marshall Fund, in its wisdom, has recommended appointing an American of “global stature” as reconstruction czar. But that individual would be a czar without an army. And why an American, one may ask, when the majority of reconstruction funds will come from elsewhere?

This leaves the European Bank for Reconstruction and Development. The EBRD was established in 1991 to construct market economies and promote democracy in Eastern Europe and the former Soviet Union. Economic reconstruction is central to its mandate. It is focused on the region. It had more than 100 staff working in Ukraine before the war. The US, Canada and Japan are among its shareholders.

While the EBRD has made the right noises, it has not yet organised the kind of high-profile initiatives one would expect of the lead entity on Ukrainian reconstruction. Its president and staff need to get off the dime.

A final argument for the EBRD is that China joined it as a shareholder in 2016. Tension between China and the West continues to intensify. And China has been reluctant to break with Moscow over Ukraine. Creating a vehicle through which China can contribute to Ukrainian reconstruction would facilitate cooperation with the West. This, if nothing else, could be a silver lining of the Ukrainian conflict.

Barry Eichengreen, professor of Economics at the University of California, Berkeley, is the author, most recently, of In “Defence of Public Debt” (Oxford University Press, 2021). Copyright: Project Syndicate, 2022. 

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