The Group of 7 nations is set to announce a finalized plan on Wednesday to provide Ukraine with a $50 billion loan, utilizing Russia's frozen central bank assets, according to officials from the Biden administration.
This loan represents a significant action by Western nations to compel Russia to cover the damages inflicted on Ukraine amidst an ongoing war.
President Biden stated, "These loans will support the people of Ukraine as they defend and rebuild their country," emphasizing that tyrants will be held accountable for the destruction they cause.
The announcement follows months of discussions among U.S. and European policymakers regarding the use of $300 billion in frozen Russian central bank assets to assist Ukraine.
Sanctions imposed by the United States and the European Union after Russia's invasion of Ukraine in early 2022 resulted in the freezing of these assets, primarily held in Europe. As the conflict continued, U.S. officials advocated for the direct allocation of these funds to Ukraine for its economic recovery.
European officials expressed legal concerns about this approach, leading to a compromise over the summer to use the interest earned from the frozen assets to support the $50 billion loan.
Daleep Singh, the White House’s deputy national security adviser for international economics, noted that this is the first instance of a multilateral coalition freezing an aggressor nation's assets and using their value to fund the defense of the affected party.
The United States is expected to contribute $20 billion to the loan, with additional funding coming from the European Union, Britain, Canada, and Japan.
Currently, over $200 billion of Russian reserves are held by Belgium's central securities depository, Euroclear, generating more than $3 billion annually in interest to repay the loan over time.
Negotiations for the loan had faced delays due to technical and legal issues, with the U.S. seeking a method to contribute without requiring additional Congressional approval.
Assurances from the European Union regarding the continuation of sanctions on Russia were necessary to ensure that the loan could be repaid through the generated interest rather than U.S. taxpayer funds.
The U.S. contribution is intended for economic assistance unless Congress permits a portion to be allocated for military aid. The Biden administration is urging Congress to enact necessary legislative changes by mid-December; otherwise, the full $20 billion will be provided as economic aid.
At least half of the U.S. funds are planned for distribution to Ukraine later this year via a World Bank trust fund. The loan will be sourced from the U.S. Federal Financing Bank and guaranteed by the United States Agency for International Development.
Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, remarked that the loan agreement underscores the G7's strong support for Ukraine, countering perceptions of war fatigue.
He noted that the use of Russian funds to support Ukraine makes it less likely that Western nations would withdraw support, even with potential political changes in the U.S.
Officials are working swiftly to finalize the loan terms to provide Ukraine with essential economic support by year-end.
On Wednesday, Treasury Secretary Janet L. Yellen met with Ukraine's finance minister, Serhiy Marchenko, to sign documents related to the loan.
Yellen stated, "This loan initiative will provide Ukraine with urgently needed funds and will make funds available by the end of this year," reinforcing that Russia will bear the costs of its actions through the repayment mechanism.
Marchenko described the loan as a "tremendous decision" that would signal to aggressors the consequences of invading democracies. He expressed hope that it would lead to discussions about seizing the entirety of Russia's frozen assets.
Britain will contribute $3 billion to the loan, primarily for military equipment, as stated by Chancellor Rachel Reeves.
The European Parliament recently approved an E.U. loan of up to $39 billion, addressing Ukraine's urgent financial needs for weaponry and energy infrastructure as winter approaches.
Ursula von der Leyen, president of the European Commission, indicated that Europe is prepared to proceed with the loan even prior to the U.S. confirming its contribution.
A key issue in negotiations was Hungary's opposition to extending the review period for sanctions against Russia, which could affect the availability of the frozen assets.
Singh confirmed that the U.S. received sufficient assurances from the E.U. regarding the security of the loan, which includes provisions for Russia to repay it in the event of a truce.
Russia has condemned the freezing of its central bank assets, threatening legal action if the reserves are allocated to Ukraine.
The Group of 7 maintains that the loan does not breach international law, as the interest generated from the assets is not considered Russian property.