The costs that the Russian invasion has inflicted on the Ukrainian economy are enormous. The World Bank warns that the country’s GDP may contract by as much as 45 percent in 2022. According to the kyiv School of Economics, direct damage to infrastructure from Russian aggression currently amounts to about $80 billion. And the total cost of rebuilding the country is expected to be much higher – the former governor of the central bank of Ukraine, Valeria Gontareva. warns it is already approaching $600 billion and may exceed $1 trillion.
Despite the ever-increasing costs of the invasion, not only for Ukraine but also for Russia – Russian President Vladimir Putin, however, does not seem ready to de-escalate. On April 12, Putin said the peace talks had reached a “dead end” and insisted that his so-called “special military operation” in Ukraine will not stop until he achieves all of his goals. Three days later, Russia carried out a new round of missile strikes on the Ukrainian capital, kyiv, for the first time since the withdrawal of its troops from the region. Since then, the attacks have scaled in Ukraine’s second largest city, Kharkiv, and Russian troops have been preparing to carry out a new offensive in the Donbas region.
Putin seems determined to turn all Ukrainian cities and towns that resist his invasion into rubble, showing little concern not only for civilian lives but also for the economic future of the country he is supposedly trying to save from itself and “ denazify”. And he, too, seems incapable of, or uninterested in, developing, or even sustaining, the economy of any territory that manages to wrest Ukrainian sovereignty from him.
Moscow, for example, has not invested in restarting the economy of parts of the Donbas region that it occupied some eight years ago. The Yenakiyeve steel plant, which was in working order when Moscow took control of it in 2014, has been in trouble ever since. Even the jewel of Putin’s prize from the 2014 invasion, annexed Crimea, where he made investments worth billions in recent years, still endures. massive economic struggles.
And Mariupol is now suffering an even worse fate at the hands of Russia.
The population of the strategic port city has always leaned in favor of Moscow and continued to vote for parties perceived to be close to Russia even after the start of the 2014 war. But while they were less than enthusiastic about Ukraine’s gradual move away from Russia, Mariupol residents never yearned for a Russian military operation in the city, and for good reason.
Today, after nearly two months of indiscriminate shelling and heavy fighting, Mariupol lies in ruins. Ukrainian forces are making a brave last stand from the belly of Azovstal, one of Ukraine’s largest steel mills, but there is little hope for the city’s future. Thousands have lost their lives and there is almost no infrastructure left to support survivors after the fighting ends. Looking at its past performance in occupied Donbas, there is reason to believe that if it succeeds in holding Mariupol in the long run, Moscow will show no real effort to rebuild the city or its steel mills.
All Ukrainians, living in areas controlled by Ukraine and under Russian occupation, will continue to suffer from the devastating economic impact of Russian aggression for a long time to come. The West’s economic war against Russia, which will undoubtedly continue barring a major change in Russian policy or leadership, will compound these economic challenges.
But the West can punish Russia economically for its continued aggression while ensuring that it pays for the damage it inflicts on Ukraine and its economy.
To achieve this, Western nations must not only seize Russian assets, but also establish a ledger of the costs borne by Ukraine due to the invasion, both in direct and indirect damages. Of course, Moscow will fight tooth and nail against any such effort, and it has experience in doing so. For example, under existing law, Moscow avoided paying more than $50 billion in compensation to former shareholders of its once-leading oil company Yukos, which it nationalized in 2004. But Western governments can ensure that the Ukrainian people, not the lawyers benefit from the seizure of Russian assets by coming together and agreeing on a new legal framework.
In addition, Ukraine’s foreign debts should be included in Russia’s balance sheet to cauterize the economic hemorrhaging the country is currently suffering. Those debts don’t have to stay there forever. But with Moscow headed for a disorderly default despite a low debt-to-GDP ratio, making them Moscow’s responsibility, at least for now, could incentivize Moscow to make concessions.
However, even if all these measures are implemented, Ukraine’s recovery would require investment and support from the West. Therefore, beyond making Russia pay for what it did, Western nations must also come up with a “Marshall Plan” for Ukraine.
The first Marshall Plan not only rebuilt Europe’s economy after World War II, it also created lucrative investment opportunities for American businesses and, ultimately, new capital markets. A Marshall Plan for Ukraine can do the same. Investors affected by the write-off of Ukraine’s debts may be invited on preferential terms. More countries can join Poland by offering lines of trade for the Ukrainian currency imminently and long-term state-backed investment programs backed by official development finance institutions can be established.
To be sure, the West is waging an economic war against Russia. But there are legitimate concerns that some countries, including the US, are not yet totally committed to this “war effort.” If Ukraine wants to resist this invasion and rebuild its economy, the West must do everything possible to help Ukraine and weaken Russia, at least economically. To this end, a new “financial NATO” must be formed to help minimize the costs of sanctioning Russia for Ukraine’s allies.
None of these moves will imminently renew growth or stop Russia’s continuing war pain. But they can help ensure that the West’s economic war against Russia not only causes maximum damage to the Kremlin, but also secures much-needed relief for Ukrainians.
The views expressed in this article are those of the author and do not necessarily reflect the editorial position of Al Jazeera.