Ukraine can unblock Russian $300 bln through reparations bonds: Reuters voices an unusual plan

Experts suggest that Ukraine should use an unusual financial instrument as an alternative to confiscating $300 billion of the Russian central bank's funds blocked in Western countries. They are talking about issuing so-called reparations bonds. Although this option is clearly inferior to receiving direct funding from the US, EU and other allies, as well as the direct confiscation of Russian money, it can help Ukraine cope with financing its wartime expenses.

Reuters writes about this. It is assumed that Ukraine could receive funds by selling bonds secured by future claims for damages against Russia. In this case, it would theoretically be possible to collect money from Russia at the expense of Russia's frozen assets.

"It would be better if Ukraine's supporters simply gave it more money... But efforts to recover Russia's frozen assets are moving slowly. Lawyers argue over whether the confiscation would be legal. Politicians wonder if it would be wise, although they are actively studying the issue. Reparations bonds would allow to avoid these problems," the agency notes.

In this case, Ukraine would sell the securities it occupies but only if it receives reparations from Russia for the damage caused by the war. Interest payments can only be made if Ukraine receives compensation.

"The bondholders would have no contractual claim on the Kremlin's frozen reserves. But given that Russia is unlikely to pay willingly, these assets ($300 billion) would be a likely source of cash to compensate for losses," the agency notes.

A significant disadvantage is that it is almost impossible to sell such securities on market terms. "Reparation bonds" would be too risky for investors without a significant discount. And this option is no longer profitable for Ukraine because the bonds are already a loan, not free aid.

According to the agency, the plan can only be implemented if the United States, EU governments, and other allies commit to buying "reparations" securities. "Reparations bonds are not the only innovative idea... But it is not designed to confiscate Moscow's assets, which is the basis of many other proposals. If Ukraine's allies are unable to issue large checks, bonds can be a good backup plan," the agency summarizes.

Earlier, it was reported that the administration of US President Joe Biden supported a bill to seize part of the $300 billion of frozen Russian assets. Subsequently, these funds are planned to be used to restore Ukraine.

Russian money frozen in Europe is now also used for the benefit of Ukraine. However, so far, it is only small amounts. For this practice to become full-fledged, the EU will have to change its legislation and develop new legal mechanisms, which Russian propaganda in the West is trying its best to prevent.

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