Opinion – Martin Wolf: It is the West’s duty to help Ukraine win this war

Ukraine survived the onslaught of its brutal enemy. She humiliated the Russian army and regained much lost territory. These are great achievements. But the war is not over. On October 10, Russia began a new phase, with the destruction of civilian infrastructure. His aim now is to break the willpower of the Ukrainian people. This too should fail.

The principles of post-war European life are at stake: borders cannot be changed by force, and citizens cannot be prevented from choosing who governs them. Moreover, if Russia won, Europe’s eastern border would be the domain of a revanchist tyrant. If Ukraine won, it would be a powerful bulwark against Russia. This war, then, is existential – not just for Ukraine, but for Europe as well.

The West needs to ensure that Ukraine survives and thrives as a prosperous and democratic nation. This is not only a moral necessity, but also in your interest. There has long been concern about corruption in the country. But the way Ukraine has mobilized to fight this war shows that this is not the country we see today. A corrupt oligarchic state does not organize and fight like this. Ukraine deserves the benefit of the doubt. It was remade in the war. It will certainly be remade in peace too.

However, Ukraine cannot win alone. It needs military equipment, help repairing vital infrastructure and, not least, budgetary support. It also needs continued sanctions pressure on Russia’s economy and military might. It will also need a great deal of help in rebuilding, as it seeks a life within the European family, a life won through the struggles of its people and which will bring enormous benefits to Europe.

The damage was extraordinary. Ukraine’s economy has shrunk by about a third this year, with an inevitably large impact on tax revenues. In a report published in October, the IMF points out that about a fifth of the population has emigrated, with a similar number of internally displaced people. The country is now facing enormous expenses to fight the war and repair the damage. All of this has devastated public finances. As long as the war continues, so will the costs. Ultimately there will be a huge rebuilding bill.

The finance ministry has done a more than commendable job in managing the fiscal situation. However, it has had to rely on monetary financing of the fiscal deficit, foreign currency reserves are close to zero and inflation for the year to December will be around 30%.

The IMF estimates that, if all goes well, the country will need US$40 billion (R$208.8 billion) in external fiscal support next year, plus US$8 billion (R$41.8 billion) for repairs to infrastructure. If all goes wrong, around US$ 9 billion (R$ 47 billion) more will be needed. The European Union is expected to commit €18 billion (R$98.7 billion) in fiscal support for next year. The US government asked Congress for US$ 14.5 billion (R$ 75.7 billion) until September 2023, with an expectation of more for the 2023 balance. The EU member countries, in addition to others (Japan and the United Kingdom , for example), and international financial institutions should donate more. Still, external budget support will only be sufficient if all goes well. Clearly, things could be a lot worse if the Russians managed to inflict a lot more damage on the economy than they already have.

The EU also wants conditionality, to ensure macroeconomic stability, good governance, the rule of law and energy sector reform. It is questionable whether such conditionality makes sense in a hitherto successful war of survival. In any case, partly for this reason, the EU also wants an IMF program, both as a catalyst for reforms and money. Meanwhile, the fund is constrained by its articles of agreement, which call for a program to ensure the sustainability of the balance of payments, as well as guarantees that the money will be returned. In this war, neither is certain.

One can imagine three ways out of this impasse: one is for Western stakeholders to insure the IMF against losses; the second is for the IMF to be more creative and lend anyway; the last is that the imprimatur of the IMF comes only from its emergency programs and what it calls “Program Monitoring with Board Involvement”.

It is right to think of post-war Ukraine as well: the needs for reconstruction and, not least, its financing (in part perhaps from confiscated Russian assets); and building a more modern European country and economy. But the necessary condition for this is continued independence and final victory in the war. This will require an enormous amount of assistance, with increased supply (and therefore production) of weapons, sufficient and reliable fiscal assistance, and a flow of the necessary equipment to repair the infrastructure that Vladimir Putin will continue to destroy, because that is all he has. can.

Ultimately, war is a matter of resources and motivation. This Ukraine has: it is smaller than Russia, but it has shown much greater motivation; and your allies have the resources. The combined gross domestic products of the US, EU, UK and Canada are about 22 times greater than those of Russia. Even fiscal support of US$60 billion (R$313.2 billion) next year would cost just 0.1% of combined allies’ revenues.

Who could argue that this is inaccessible? Isn’t it much more inaccessible to let Putin triumph? Yes, it is painful to suffer the energy shock of this war. But it is the West’s duty to deal with it. It is Ukraine and Ukrainians who bear the brunt of the conflict. We in the comfortable West must give them the resources they need. Only when Putin knows they won’t let him win will the war finally end.

Translated by Luiz Roberto M. Gonçalves