Author: Eric LeCompte, the executive director of Jubilee USA Network
The images of families fleeing and the decimation of Ukraine are heartbreaking.
Not since World War II have we seen a humanitarian crisis in Europe on this scale. Unlike World War II, we are witnessing the human suffering in real time as it unfolds on screens and social media. While the United Nations reports around 750 civilians have been killed and injured, including children, they assert the numbers are likely much, much higher.
It’s estimated that over 1.7 million people have fled to neighboring countries and more than a million people are internally displaced in Ukraine. Across the Eastern European nation, people struggle to find diapers, formula, and medicine. In too many places in Ukraine, electricity, water, and basic supplies have become inaccessible luxuries.
The outpouring of global aid in these times of crisis is a sign of hope. The United Nations, governments, religious institutions, relief agencies, the private sector, and development and financial institutions must continue to send aid to meet the needs of Ukraine’s people throughout the crisis and eventual recovery.
Because of the coronavirus crisis, all countries worldwide already faced severe economic and health crises or higher inflation and supply shocks. The Ukraine crisis will cause additional global economic shocks. Because of these shocks and because of the Ukraine financial and humanitarian crisis, the international community must quickly do more.
Unfortunately, while there are critical things that must be done, our failure to implement full financial crisis solutions limits the scope of the financial crisis response for Ukraine.
What can be done now to have an impact for Ukraine and its peaceful neighbors?
Governments and global financial institutions can take action to support Ukraine and to help restore some stability to the global financial system.
While piecemeal, it’s a start.
Ukraine currently holds $94.7 billion in debt. Ukraine will fail to pay external debts while the humanitarian crisis rages on.
The G7 can lead the suspension of Ukraine debt payments. Governments around the world can offer debt relief and implement efforts to protect Ukraine from paying private creditor debt. While the Biden administration has been heroic in leading financial sanctions on Russia, a Biden executive order would help stop a major portion of the $28 billion of the overall private creditor debt payments that is registered under U.S. law. This action would follow precedent when George W. Bush halted private creditor and oil obligations for Iraq’s recovery.
Countries around the world, including the U.S., hold about $6.5 billion in debt. According to the World Bank, the U.S. holds $790 million in Ukraine debt with somewhere between $1 million and $2 million of payments coming due this year. Congress can defer or forgive those debt payments.
The International Monetary Fund, the World Bank, development banks, and international financial institutions must renegotiate their current $22 billion in debt holdings. The IMF holds more than a half of that Ukraine debt at $13.4 billion with $2 billion in debt payments owed this year. The IMF says it’s not in the business of debt forgiveness, but it can immediately send a strong signal of support by restructuring and delaying debt payments to years in the future. Since Ukraine will most likely default on these payments, the IMF should act quickly to restructure the payments.
The crisis worsens in Ukraine and surrounding countries. The World Bank and bilateral donors can and need to support the countries taking in the largest level of refugees we’ve seen since the last world war. While all of these actions can and must be done, we still deal with the reality that Ukraine’s crisis and the pandemic crisis that every country faces reveal a failure to protect people, creditors and debtors.
Major religious leaders, like Pope Francis and his predecessors, call for Jubilee processes to ensure all countries can deal with economic, disaster and health crises and have enough to meet basic needs. Most countries around the world depend on domestic bankruptcy frameworks to ensure economic stability and that debts are resolved in timely, fair, comprehensive and neutral ways to the benefit of the debtor and the creditor. And yet, we’ve failed to adequately implement these processes in the global financial system. These processes would also protect wealthy countries from economic and supply shocks when developing countries are struggling.
Until we implement robust financial crisis prevention processes and global bankruptcy, we must do what we can to provide debt relief and essential economic aid for Ukraine and all developing countries during the crisis and during the recovery.