Elena Buturlim11:33, 05/20/24

G7 finance ministers hope to finalize the plan before the group’s leaders meet in June.

The United States and Europe are joining forces around a plan to use interest earned from frozen assets of the Russian central bank to provide loans to Ukraine. These funds will be used for military and economic assistance, writes The New York Times .

US Treasury Secretary Janet Yellen said several options remain on the table for the use of $300 billion in Russian assets. But, according to her, the most promising idea is for the G7 countries to provide a loan to Ukraine, which will be secured by income and interest income from Russian assets located in Europe.

G7 finance ministers will meet in Italy later this week in hopes of finalizing a plan they can present to heads of state ahead of the group’s leadership meeting next month.

“I think we are seeing significant interest among all of our partners in a lending structure that would generate a windfall stream. This would provide a significant upfront amount that would help meet the needs that we expect to arise in Ukraine both militarily, and in terms of reconstruction,” Yellen said during a visit to Germany.

The authors emphasize that Western allies have been discussing for several months how far they can go in using the assets of the Russian Central Bank. The United States believes that confiscating this money and transferring it to Ukraine would be legal under international law. At the same time, several European countries, including France and Germany, are wary of the legality of such a move.

“Although the United States recently passed legislation that would give the Biden administration the power to seize and confiscate Russian assets, the desire to act in unison with Europe has largely sidelined this idea,” the article says.

At the same time, this month, EU countries agreed that they would be willing to use 90% of profits to purchase weapons for Ukraine through the European Peace Fund. The remaining 10% will go towards reconstruction and non-lethal procurement to satisfy countries such as Ireland, Austria, Cyprus and Malta, which are militarily neutral.

How much can Ukraine receive?

About 190 billion euros of the Russian central bank’s assets are held in the Belgian central securities depository Euroclear. These assets generate about 3 billion euros of interest per year, which could be transferred to Ukraine, journalists emphasize.

The article points out that using interest as the basis for the loan could provide Ukraine with a much larger amount of money up front—potentially up to $50 billion. The way this money is provided still needs to be worked out. The World Bank or another international agency could act as a mediator.

It also remains unclear how the loan will be repaid if the war ends before the bonds mature or if interest rates fall, making asset proceeds insufficient to repay the loan. These details are expected to be discussed by finance ministers when they meet later this week. They hope to be able to provide Ukraine with additional funds this summer.

Frozen assets of the Russian Federation

Earlier, UNIAN wrote that the International Monetary Fund opposes the West’s plans to use the frozen assets of the Russian Federation, because it believes that this could undermine the global monetary system.

The United States is in talks with close partners to lead a group of allies that will provide up to $50 billion in aid to Ukraine. The huge costs will be offset by windfalls from Russian sovereign assets that have been frozen and on which interest accrues mainly in Europe.

(C)UNIAN 2024