The United States and the European Union seem to be in no hurry to transfer $300 billion in Russian central bank reserves to Ukraine, which Western governments froze at the beginning of the war. The issue of reparation bonds can solve this issue.
The confiscation of Russian assets is progressing slowly
Reuters writes that efforts to confiscate Russia's frozen assets are moving slowly. The lawyers are debating whether the confiscation will be legal.
Indeed, a simple solution would be for Ukraine's partners to provide Kyiv with more cash, as Great Britain did last week.
But this aid is stuck both in the US and EU. US President Joe Biden has not yet been able to convince Congress to approve a new $61 billion package for Kyiv.
Hungary blocked a planned €50 billion EU bailout last month, although other member states are determined to find a way around the problem.
Reuters writes that issuing "reparation bonds" would help avoid these problems.
How to solve the problem of transferring the frozen assets of the Russian Federation to Ukraine
Ukraine will sell securities that will pay off if — and only if — it receives reparations from Russia for war damage. Interest payments can also be reduced and paid only if Kyiv receives compensation.
Bondholders would have no contractual claim on the Kremlin's frozen reserves. However, given that Russia is unlikely to be willing to pay, these assets will be the most likely source of cash for the damages.
Because reserves earn interest, they can be used to pay both bond principal and coupons. This will differ from confiscation, as assets will only be transferred if a legal compensation mechanism first decides that damage has been caused to Ukraine.
Reuters notes that Ukraine may issue reparation bonds worth up to $300 billion. But it could get a similar amount only if the United States, EU governments and other allies are willing to buy the securities.
The publication concludes that reparation bonds are not the only innovative idea of how to get cash in Kyiv now.
But they are not designed to confiscate Moscow's assets, which is the basis of many other proposals. If Ukraine's allies can't write more megachecks, the bonds could be a good backup plan.
