The European Union and U.S. both say they want to help Ukraine – they just have different ways of showing it.
The EU yesterday announced it’s ready to offer $15 billion in assistance to Ukraine. On the other side of the Atlantic, Congress considers legislation that would provide $1 billion in loan guarantees, a move that wouldn’t result in any money changing hands.
While the European offer dwarfs that of the U.S. in terms of dollars, it also comes with strings attached. The combination of loans and grants over the next couple of years would be contingent on structural changes to the country’s financial system and would require Ukraine to sign an agreement with the International Monetary Fund. Contrast that with a one-paragraph bill passed by the U.S. House on Thursday that sets no such conditions.
The House measure stipulates that the U.S. would publicly and legally back bonds issued by the Ukrainian government so that buyers in the commercial market would be confident of repayment. The loan guarantee would not result in a disbursement of U.S. funds to Ukraine, nor would it result in any new budget authority, according to a cost estimate by the Congressional Budget Office
However, if things were to turn south in Ukraine and the current government, or a new one hostile to the West, is unable to repay bondholders, then U.S. taxpayers could be on the hook for repaying the loans.
Before any of that, U.S. law requires that a proportional amount of existing funds would need to be transferred to what’s known as a loan-loss reserve. Initial estimates put that amount at $200 million for a loan guarantee of this size.
Congress is “more focused on showing as much support as soon as possible,” said Brandon Barford, a partner at Beacon Policy Advisors LLC in Washington, who used to work on the Senate Banking, Housing and Urban Affairs Committee. He added that this move sends a signal to Russia that says, “Listen, we’re willing to put up money.”
Earlier this week the Obama administration pledged $1 billion in energy subsidies to Ukraine, and yesterday President Obama signed an executive order that “authorizes sanctions on individuals and entities responsible for violating the sovereignty and territorial integrity of Ukraine, or for stealing the assets of the Ukrainian people,” in addition to issuing a travel visa ban on certain Russians.
Administration officials, however, caution that the U.S. can’t go it alone when it comes to helping Ukraine repair its economy.
“The economic situation in Ukraine is quite fragile – stemming from many years of unsustainable economic policies under previous governments, as well as the negative confidence impact from Russia’s recent actions in Crimea,” Daleep Singh, deputy assistant secretary for Europe and Eurasia, said during a House Foreign Affairs Committee hearing yesterday. “Only the IMF has the capacity and expertise to help Ukraine develop a comprehensive adjustment program.”
Getting Congress on board with an IMF-led approach that goes beyond a $1 billion loan guarantee could prove difficult, even with this week’s pledge from Senate Minority Leader Mitch McConnell to back Obama in dealing with the situation in Ukraine.
“We’ll support him however we can to ensure a satisfactory outcome for the Ukrainian people, and to prevent this conflict from escalating into a wider war,” the Kentucky Republican said on the Senate floor. “They deserve our support.”
That rare extension of an olive branch wasn’t lost on Obama in his remarks announcing the sanctions and visa bans.
“One last point – there’s been a lot of talk in Congress about these issues,” Obama said. “Today, once again, I’m calling on Congress to follow up on these words with action, specifically to support the IMF’s capacity to lend resources to Ukraine and to provide American assistance for the Ukrainian government so that they can weather this storm and stabilize their economy, make needed reforms, deliver for their people, all of which will provide a smoother pathway for the elections that have already been scheduled in May.”
The House bill, which passed 385-23, now heads to the Senate.
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