Cancelling Ukraine’s debt would help the whole world

Ukrainians need resources now. The country needs to get food and medicine to communities living under Russian bombs and siege. It needs to help 6.5 million displaced people get to safety and find a way to live in another part of the country. But it also needs to restructure its economy almost overnight, under bombardment – and much of the world needs it to succeed.

Ukraine is the world’s fifth largest exporter of wheat. It has lost the use of its ports to the Russian blockade, and needs to create the infrastructure for new overland export routes, in war conditions. If lower-income countries lose access to Ukrainian, as well as Russian wheat, the higher prices could trigger a global food crisis,  which will only deepen the ongoing debt crisis.

This week, the World Bank warned that “The Ukraine war immediately darkened the outlook for many developing countries that are major commodity importers or highly dependent on tourism or remittances,” and is likely to lead to the “largest spate of debt crises in developing economies in a generation.”

Yet despite the stakes, Ukraine is still being forced to divert crucial resources to making debt repayments to its lenders – $7.3 billion is due this year alone. For all the words of solidarity from global leaders, not to mention new loans, there has been silence on Ukraine’s debt.

There is no process

The Ukrainian government is currently saying that it will keep making debt payments. But it is in an invidious position.

It can stop making payments and request a restructuring. But there is no process, and no guarantee that it will receive any debt relief.

The three countries that have applied to the G20’s high profile debt relief scheme, the Common Framework, have spent 18 months snarled up in negotiations with different combinations of lenders. None have yet received any debt restructuring, or even a suspension of their payments.

In any case, Ukraine is not even eligible for the Common Framework, as it was not considered vulnerable enough by the G20, although it is poorer that some countries which are eligible. On debt, Ukraine is on its own.

Private profit at the expense of Ukrainians

As a result, public money, intended to benefit the Ukrainian people, is flowing straight back out of the country into the profit of corporate lenders.

The first debt payment that the Ukrainian government made after the invasion was to bondholders, mostly western banks and hedge funds. This means that a hedge fund buying bonds now could make a profit of two to three times its original investment, including interest, if Ukraine keeps making its payments.

This problem will only grow more acute. The costs of reconstruction from the war will be vast. There is talk of a Marshall Plan for Ukraine – the German government has already begun to commit funds. The sums will need to be enormous.

Yet they could be siphoned off by disaster capitalists making profits out of Ukraine’s distress.

The need for a mechanism

The Ukraine debt crisis is an example of the need for disaster planning. In any disaster, whether an invasion or a climate-related extreme event, the priority is getting support to communities affected and rebuilding crucial infrastructure. It is not the time to be having complex negotiations about financing.

This is why we need an automatic mechanism that countries can use to suspend debt payments in the event of a disaster. Once the moment of crisis has passed, there would be a process of assessing and restructuring debts so that they are sustainable without impeding reconstruction.

As the climate crisis intensifies, we will see more hurricanes devastating lower-income countries, but also more conflict and instability. The orthodoxy that debts must continue to be repaid, whatever the circumstances, cannot survive in this increasingly unstable (and unequal) world.

The justified wave of support for Ukraine is an opportunity. Ukraine’s position in the global economy, European geopolitics and the world media attention means that big solutions can be put on the table. There will be more political will to solve this crisis than there would be for other global South countries.

That’s why this is the moment to demand debt cancellation for Ukraine, but also a global mechanism that would benefit other countries in the future. Ukraine will not be the last country to face the demands of lenders in the midst of unimaginable catastrophe.

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