Politics overshadows a conference to raise money for Ukraine

THE TITLE of the Ukraine Recovery Conference that opened on June 11th in Berlin may seem overly hopeful. For the moment there is still a lot more destruction than reconstruction going on in the country, and most of the attention is on providing resources to keep things from deteriorating any further. Russian drones and missiles have knocked out half of the 18 gigawatts of power-generating capacity that Ukraine had before last winter. Volodymyr Zelensky, Ukraine’s president, speaking at the conference, pleaded for help in decentralising the country’s energy system (with generators, solar panels and wind turbines), and for more air-defence systems. Olaf Scholz, Germany’s chancellor, obligingly announced he would give the Ukrainians a third Patriot missile battery.

The longer-term questions are how to restore Ukraine’s economy to prosperity, and how to fund both the ongoing costs of government and the eventual reconstruction of the country. The World Bank estimated the cost of repairing the destruction wrought by the war at $486bn as of last winter, and that number does not include the recent damage to the power system. Ukraine’s entire government budget for 2024 is $87bn (about half of it is spent on defence), but its expected tax revenues come to only $46bn. The rest must be filled by foreign aid or borrowing. America’s approval in April of its long-delayed $61bn aid package for Ukraine will help, as does the EU’s €50bn ($54bn) aid package, which lasts until the end of 2027.

Another question mark hanging over the conference was the absence of Mustafa Nayyem, a well-known former anti-corruption journalist who has been heading Ukraine’s agency for infrastructure and redevelopment. He tendered his resignation on June 10th after the government barred him from attending the Berlin conference. Mr Nayyem and his ally Oleksandr Kubrakov, who was fired from his position as infrastructure minister in May, came into conflict with Mr Zelensky and his powerful aide Andriy Yermak. Ukrainian sources say they were considered too independent, and that their direct contacts with Western donors were seen as threatening.

The sidelining of Mr Kubrakov and Mr Nayyem has contributed to growing concerns among Ukraine’s foreign partners about the government’s reliability and transparency. “They were delivering the steps needed for ensuring transparency and accountability in our reconstruction procedures. That trust has been flushed down the toilet,” said Daria Kaleniuk of the Anticorruption Action Centre, a Ukrainian watchdog. The head of a big Western donor agency at the conference said the fact that Mr Kubrakov has yet to be replaced is not reassuring, and that it is important to appoint a successor with a squeaky-clean reputation.

That may not be easy. Ukrainian civil society activists say that the treatment of Mr Nayyem, a hero of the Maidan revolution in 2014, has made working for the government look unattractive. “No one will go to work for them,” one said.

Although some of the aid announced at the conference will go to the Ukrainian government, much was focused on bringing in private business–what the EU calls “pillar two” of its assistance programme to the country. Investors have hesitated to move into Ukraine because of war-related risks. Ursula von der Leyen, president of the European Commission, announced €1.4bn in new investment from European banks, along with guarantees for banks that are willing to extend loans to Ukrainian businesses.

Mrs von der Leyen also noted that the EU is moving ahead with a plan to use frozen Russian assets, which amount to some $300bn, to help Ukraine. The plan uses a complicated financial mechanism to transfer profits from the frozen assets to the Ukrainian government; €1.5bn is to be handed over in July. Pro-Ukrainian groups have lobbied for America and the EU to confiscate the assets entirely, but that has so far not happened because of worries that it could violate international law.

Perhaps the greatest worry is that no big aid packages may be forthcoming in the future. European politics are shifting towards the Russia-friendly far right, and America may re-elect Donald Trump in November. But those were questions the Ukrainians at the conference were in no position to answer; they were simply happy for the help they were getting. Ihor Terekhov, the mayor of Kharkiv, which has been mercilessly bombed by Russia for months, signed a pre-financing agreement on a multimillion-dollar loan from the European Bank for Reconstruction and Development. The money will go towards upgrading his city’s metro. It will also, he said, free up municipal funds for generating heat and power this winter: “It’s a matter of life and death.”

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